2023 can be the year you decide to improve your finances.
How many New Years have passed with you having the same resolutions — lose weight, get healthy, exercise, meditate and save more? And how successful have you been at achieving these goals? But, unfortunately, when it comes to money, the ghosts of the past can have a strange and potent hold on you.
Here are 12 highly achievable financial habits to help you completely steer the ship to where you want to go — at least regarding your finances.
1. Set/Review Your 3, 5, and 10-year Financial Goals
Money is of value only because it helps us achieve our goals — providing food and shelter for our families, traveling to beautiful destinations, paying for our children’s education, or retiring comfortably.
If you've never set financial goals for yourself, now is the time to start. Write an exhaustive list of all the goals you'd like to achieve in your lifetime but select three that are the most important for you now.
One short-term goal you hope to achieve within the next three years, a medium-term goal (to achieve between three to ten years), and a long-term goal of over ten years from now.
Studies have shown, such as the one based on a survey conducted in 1979 with a Harvard class of MBA program students, that setting clear, written goals for the future increases your chance of achieving them.
In the case of the Harvard class of MBA students, 84% of them had not set any goals, 13% of the class had spoken unwritten goals, and only 3% had written their goals. This was what they found ten years later. The 13% that had goals but did not write them down earned twice as much as the 84% that did not set any goals.
But get this; the 3% who wrote their goals and plans earned ten times as much as all the others combined.
2. Create A Budget.
Budgeting is not as much about reflecting on what you cannot have but more about thoughts on how to stretch, invest and spend your earned dollars wisely. In short, it is about making your money go further.
A well-thought-out, planned, and a realistic budget is a financial tool that facilitates your financial dreams, goals, and aspirations, making them become a reality.
Keep track of your money that’s coming in and what’s going out. Then, use an app such as mint or digit to help you track your expenses. Finally, direct some of your money towards an account designated to your goals and have your app track these.
3. Reduce and Eliminate debt
Some people are more comfortable carrying a large amount of debt than others. If the debt you’re carrying stresses you, it’s obvious you’re carrying more than you’re comfortable with.
Even if you are comfortable carrying large debt, it’s important to realize that debt can rob you of your future. In addition, a large debt can be stressful and prevent you from achieving your goals unless you use credit to build your assets through real estate or investing.
4. Pay Yourself First
Save a portion of your income each time you get paid. It truly is a form of self-care. Have this automated. We usually spend all that’s easily available to us. If we leave all our income in our bank account, most of us would probably spend what’s there.
By transferring a portion of your income into a savings account that is more difficult to access, that portion can be left to build up. And through the power of compounding, this can add up to a healthy nest egg over time.
5. Start Investing
Investing is one of the best ways to build wealth and achieve your goals. You need growth if you have a long-term time horizon. If you are concerned about risk, ask yourself, “can you afford NOT to take any risks?”
Allocate your investments to align with your risk tolerance and objectives. Whether through a financial advisor or a Robo advisor, if you have never invested before, start investing now!
6. Check Your Credit Score
Your credit score rates your credit history. Credit reporting agencies such as Transunion provide you with your credit score. It shows how well you were able to repay your loans. In addition, potential lenders, landlords, and utility companies look at your credit score to see if you’re an acceptable credit risk.
A high credit score means you are an acceptable credit risk. And you may qualify for a lower interest rate on some credit facilities and loans.
A low credit score may disqualify you from getting loans. Keeping your credit clean is crucial to ensuring good financial health, like your doctor’s health report and history.
Identity theft can affect your credit score. This year, check your credit history to ensure there are no entry reports from fraudulent transactions.
7. Protect Your Family
What would happen to your family’s financial situation if you were to become disabled or die? Do you have enough insurance to protect them from the loss of income if you die or become disabled? Consult with an insurance advisor for advice on what you need.
8. Prepare or Update Your Estate Plan
A good estate plan provides clear instructions on how you would like your assets distributed upon death. The death of a loved one is a difficult time for any family.
Preparing your estate is one way to ensure your loved ones do not have to deal with more than the grief of loss. A proper estate plan comprises a Will, enduring power of attorney, and a living Will or health directive.
9. Create a Retirement Plan
Regardless of your stage in life, you’re never too young to plan for retirement. With most people retiring at 60 or 65 and the average life expectancy at 78 to 80, the average length of retirement is about fifteen to twenty years. That is a lot of time to decide the kind of retirement you want.
10. Invest In You
The best investment you can make is to invest in yourself. So, pick up a new skill this year through courses on Thinkific and Udemy or Skillshare. Learn about investing and managing your money. Or deepen your knowledge of something you’re passionate about, whether tango dancing or learning Spanish.
11. Start A Side-Hustle
As billionaire Warren Buffett said, “If you don’t find a way to make money while you sleep, you will work until you die.”
For the new year, start a side hustle. Build a business that aligns with your passions and expertise.
12. Hire A Financial Coach
Choosing a good financial advisor or coach is key to your overall financial well-being. A study by the investment firm, Vanguard, shows that working with a financial advisor can increase your investment returns by 3%. Russell Investments puts it closer to 3.75%.
Bringing It All Together
The New Year is always a good time to take stock of your financial situation and implement changes to align with your values and goals. Share your vision with your family and start making those changes now.