The start of a new year is a good time to dream big and set new goals. This is also a prime opportunity to step back, review your own financial situation and make sure your finances are on track to help you achieve your goals. Here are three fundamental steps to think through as you begin a fresh start in 2016.
Step one: Set concrete goals
One of the best ways to enhance the potential for building wealth and ensuring long-term financial security is having clearly defined financial objectives and a plan to pursue them. Typical goals include:
• Providing for your children’s education
• Purchasing your first home or a vacation property
• Having enough money to retire comfortably at a specific age
• Setting money aside to start a business
Contemplate what’s important in your own life and try to put a timeframe and priority on those goals. Next, consider the amount of time available for you to save for each goal and how much money will be required. For some goals, like saving for a down payment on a house, it may be easier to determine the amount needed and the timing of your planned purchase. For other goals, like education saving or retirement, more variables can come into play. Having a formalized financial plan can help you see how you’re progressing toward multiple goals over time. You can then adjust your strategies or priorities to stay on track.
Step two: Match your spending to your goals
The decisions you make with your money every day can make an impact on your long-term goals. Yet it can be challenging to balance the comforts you want today with your big dreams for tomorrow. Evaluate your typical spending pattern. How does your spending relate to the goals you established in step one? As you evaluate, consider the following questions:
• Are there ways to run your household more efficiently?
• Do you know how much you’re spending on your children’s education, activities and daily needs? Many of us underestimate the amount spent in each of these categories.
• Are you mindful in making little purchases each day or week?
• Are you strategic in how you pay down student debts, borrowing or your mortgage?
• Do you make impulse purchases without carefully considering how these items fit with your long-term goals?
This year, resolve to periodically evaluate your spending every few months. Doing so will allow you to make adjustments where necessary to stay on track with achieving your goals.
Step three: Boost your savings
The most important way to improve your long-term financial position is to begin saving more and doing so consistently. Here are some specific priorities to consider:
• If you can participate in a workplace savings plan, you should do so. If your employer offers matching contributions, make sure you save enough to take full advantage of that valuable benefit. If you already participate in a plan, consider boosting your savings.
• Build up your emergency fund, cash that is easily accessible in a bank or money market account, so it matches at least three-to-six months of your income.
• Consider opening an IRA to build up personal retirement savings in a tax-advantaged way.
Try to establish monthly contributions for each of these purposes, and set a reachable but meaningful goal for each.
When setting goals for the new year, many of us forget to consider the financial side of those goals. Think about how you’ll feel when you reach one of your goals, and then how it will feel to be right on track financially for your next goal. That feeling should inspire you to get started goal planning today.
William “Drew” Watson CFP® is a Financial Advisor and Private Wealth Advisor with Ameriprise Financial Services, Inc. in Owensboro, KY. He specializes in fee-based financial planning and asset management strategies and has been in practice for 20 years. To contact us by phone, please call 270-684-8424, or mail to 111 West 3rd St., Owensboro, KY 42303. You may also visit our website at www.williamawatson.com.