New Year’s Financial Resolutions
Did you make a New Year’s resolution this year? Maybe you want to exercise more or reconnect with old friends. For many people, getting their finances in order is a top priority. Here are some actions you can take to get a better handle on your finances in 2021:
Calculate Your Net Worth
It can be useful to have a baseline understanding of where you stand financially before you consider making any changes. Your net worth represents your assets (such as bank account balances, investments, and the value of a home) minus your liabilities (mortgage, car loan, and other debts). Knowing your baseline net worth can help you track how your financial situation improves over time.
Create a Cash Flow Statement
Do you know how much income you brought in and how much you spent in 2020? If not, creating a cash flow statement of your income and expenses could be a good idea. You can keep track manually using a simple spreadsheet or an app like Fudget. There are also many websites and apps that can help you track your cash flow by linking your financial accounts to the services, including Mint, Simplifi, Tiller, YNAB, and Clarity Money. When you see how much you spend in different categories (housing, food, entertainment) you might decide that you want to reprioritize your spending.
Check Up on Your Investments
It might have been a while since you checked on your investment balances and holdings. Varying returns for your different investments during the past year means that you might need to rebalance to maintain your preferred asset allocation.
Consider Your Insurance Needs
The beginning of the year can be a great time to consider whether your current insurance coverages match your needs. Perhaps you had a major life change in the past year that created an insurable need, or maybe as you get older you are thinking about how you would pay for long-term care needs. Even if you have not had any major changes you might consider whether you have the means to raise your deductibles, which can result in significant savings on your insurance premiums.
Check in on Your Estate Plan
Checking in regularly on your estate plan is important to ensure that it continues to reflect your wishes (and if you do not have an estate plan, creating one is a great idea!). An easy first step is to check on the current beneficiaries of your financial accounts to make sure they remain appropriate.