What Should be at the Top of Your New Year's To-Do List?
Without fail, the turn of the New Year gives many of us this burst of “you can do it” energy. It’s almost like a new car smell or the gleam of light breaking off the horizon in the wee hours of the morning. A new year is a sunrise to a new set of goals and dreams. One recommendation I offer you now is no matter your goals, you should make them achievable and measurable. Now that we’re feeling good, let's discuss some of the personal financial goals you should have to start the new year!
Financial Review
Where are you today? What does your savings look like? How much debt do you have? How much income do you earn monthly and what are your monthly expenses? These are the first 4 questions you should answer for yourself before you start the new year and here’s what you want to do with those answers:
What does your savings look like?
Everyone should be working towards or have a 3-to-6-month emergency fund. This is 3 to 6 months of your current total monthly expenses. If you pay $4,000 per month on rent, car, food, subscriptions, etc. Then you should have anywhere between $12,000 and $24,000 saved in case of an emergency. This and most of your cash savings should be in a high-yield savings account (HYSA) which (at the time of this writing) can earn you around 3.3% interest. To put that into perspective, $12,000 in an HYSA could net you an additional $390 annually without doing any work.
How much debt do you have?
If you have credit card debt, personal loans, car loans, etc., you should write down the minimum monthly payment, the APR, and the total balance due. You should then automate all your minimum payments and make additional payments to the one debt that has the highest interest rate.
Know how much you earn!
Keep your expenses below what you earn so you can save and pay down debt. In this new year, find ways to earn more each month.
What are your monthly expenses?
If you know how much you earn then you know how much you’re allowed to spend. Ideally, you’re saving 10% to 20% of your income but save what you can, even if it’s $10 monthly.
Financial Goal Setting
All right, now that we’ve covered the time-tested basics, it’s time to plan and dream. Start by taking out a piece of paper and a pen. I want you to think about 5 years from now. Write out as verbosely as you can how you want your life to look; be specific: how much do you have in savings? Are you married? Have you bought a home? Do you have a pet? Are you traveling regularly, or doing regular hobbies like taking dancing lessons, or learning a new language? Once you’re done, reread your future self’s life. How cool is it?
Now, on a separate sheet of paper, write out each of the things your future self is doing or has done, and list them out in order of importance. Those are your goals to focus on. Put a dollar value next to those goals and divide it by 60 months (5 years). Whatever those numbers are should be the monthly savings allocated toward those goals. Sometimes we can only focus on one goal at a time. Sometimes it’ll take us longer than 5 years to achieve those goals. All of that is ok! The most important piece is to visualize, believe, and then act.
Happy New Year, New You.
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