It’s January, which means it’s time for you to sign that twelve month gym contract you’ll only use until March and lie to yourself about how many books you’ll read this year. Yes, I’m talking about your New Year’s resolutions. Unfortunately, the beginning of each year is besieged with such good intentions that rarely materialize into results.
Despite my aversion to New Year’s resolutions, I am a big believer in setting goals. I always have short and long-term goals for both my personal and professional life; they guide how I prioritize my time and focus my energy. So what’s the difference? People set goals because they want to make a positive change in their life; people make New Year’s resolutions because Twitter shames them into coming up with something.
So what are your goals? Have you included something that will improve your financial life? Even those who are the most financially sound can make improvements. Consistently setting and reaching financial goals ensures that you are continually using your resources to most efficiently enrich your life. Money will not make you happy, but if you use it wisely, it can create opportunities for you and your family to enjoy. To that end, here are some suggested financial goals for the New Year.
Participating in your company sponsored retirement plan is a minimum and does not guarantee you are socking enough money away for the future. In general, you should save 10-20% of your income for retirement, so depending on what your company plan allows, you may need to augment savings with an IRA, Roth IRA, or investment account.
Also, you should build up an emergency fund for unexpected expenses. You don’t want home repairs, medical bills, or other unpleasant “life costs” to set back your savings goals or catch you off guard with a low cash reserve. Three to six months’ worth of living expenses is usually sufficient.
Buy a House
Millennials especially are wary of the permanence that home-ownership implies. There is something to be said for renting, especially if you are new to a city and unsure where you want to live. But if you are ready to put down roots and buy a home, then there are a few things to consider.
How much house you can afford? This decision should be made within the constraints of your overall budget, keeping in mind not only mortgage payments but also property taxes, insurance, utilities, and maintenance.
How much of a down payment will you make? In an ideal world, you would put 20% down, but many mortgage companies will take less, depending on your financial situation. This amount may also play a major role in determining the timeline for when you plan to purchase if you need more time to save up.
What type of mortgage will you get? The gold standard is 30 year, fixed interest. The most conservative borrowers will get a 15 year note, but you can always prepay a 30 year mortgage. Generally, a variable interest mortgage is not advisable.
Start Your Own Business
You may consider starting your own business to be more of a personal development goal than a financial one, but the reality is that most all personal goals have some financial impact. Starting a business is no exception.
You may need to save in order to fund the initial idea, continuing to work while you get the business of the ground in your spare time. Or maybe you have passed that stage and have a viable side business that deserves your full attention. In that case, make sure you have enough cash saved to fund your “runway,” which is the time it takes for your business to take off and fully fund your living expenses.
Transitioning to part-time will mean making less money, but money is just a tool, not the ultimate goal. So if you have other priorities, maybe you should consider making the move. No one ever reaches their twilight years and wishes they had spent more time at the office.
Maybe you or your spouse wants to spend more time at home with the kids. Maybe you have strong convictions about community involvement and volunteering. Or maybe you and your spouse both just want to cut back so you can travel more. If you are willing to live on less, any of these options are a possibility.
Go Back to School
At twenty-two, you swore you would never go back, yet now you find yourself perusing degree offerings and course descriptions from different schools. So whether you think a higher degree will help your career or you just want to do it for yourself, going back to school will definitely affect your finances.
The most conservative option would be to keep your job, go to school at night, and pay tuition as you go. That plan keeps you in the workforce and gets you a degree with no debt. Obviously, this option is not available for everyone. You may need to leave your job and take out a loan, or if you are married, maybe you can reduce your monthly living expenses and live on one salary while you are in school.
Get Out of Debt
You should definitely pay off your credit cards, but maybe you want to tackle something bigger like your mortgage or student loans. Especially if you have seen a recent increase in income, you may consider paying down these debts. You will sleep better and enjoy seeing the balance drop on each statement.
But in order to be successful, you need to come up with a plan. Set a specific goal with how much you want to pay off over what timeline. That way you can track your progress and increase your chance of success. Monthly advances will encourage you to continue making payments, ultimately saving you a fortune in interest.
So as gym crowds swell and wane over the next couple of months, I hope you continue pursuing your personal goals. And if you need professional direction in setting your financial goals, please let me know. I would be more than happy to help.
Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.