20 Jan Building an Effective Financial Plan for the New Year
Key Takeaways for Effective Financial Planning
- Reduce the number of goals to focus on.
- Focus on the goals that deliver the most benefit.
- Don’t ignore saving while you work to reduce debt.
- Be sure to review insurance coverage to ensure you have adequate protection.
- Don’t forget life insurance but stick to cheaper term life coverage.
- Review your progress regularly throughout the year and adjust as you go.
The new year is synonymous with change, goals, and resolutions to grow and improve in the coming year. It’s a time to reflect on the previous year and press forward with aspirations that eluded you in the past. According to Inc., 60% of individuals make resolutions with the top goals, including improved health through exercising and weight loss, and financial goals to save more and spend less.
Regardless of whether you want to lose weight or become debt free, without a new approach to goal setting, you will likely reap the same results. Building an effective financial plan should include the following steps:
Fine Tune Your Direction: It is impossible to “focus” on a dozen major goals. Instead, choose between one and five things you want to improve. Consider your biggest pain points and imagine how successfully meeting your goal will impact your life. Change requires time, energy, and constant motivation. Narrowing the focus of your time and attention will assist with the follow-through.
Think of Savings and Debt Reduction as Partners Not Enemies: When you carry mountains of high-interest credit card debt or high student loan balances, it is tempting to pour every extra dollar towards debt reduction. After all, you gain less than 1% on your savings account and pay double-digit interest on credit cards. The problem with this strategy is that lacking an emergency savings fund, every unexpected expense can become a new credit card charge. Constantly undoing your progress creates high levels of discouragement.
A better strategy is to balance the need for savings with debt reduction goals. Each paycheck set aside a predetermined amount to build your emergency fund and to pay down high-interest debt. Over time, your growing savings account can pay for unexpected expenses without needing to put those bills on your credit card.
Don’t Skimp on Insurance: When used properly, insurance serves as protection against financial loss. It is tempting to select a high deductible plan or skip insurance altogether as you pursue creative ways to save money. However, doing so could lead to a financial crisis should you experience a car accident, a health crisis, or a natural disaster. When choosing an insurance policy, make sure you are comfortable covering the out-of-pocket costs in the event of a claim and have the required deductibles or put-of-pocket expenses saved and available to use.
Don’t forget about life insurance: One of the most overlooked forms of insurance is life insurance. Not being covered can mean financial disaster or even bankruptcy for a surviving spouse and children. With the sudden loss of household income, and mounting expenses after the death of a spouse, life insurance can provide the necessary means to cover household expenses or pay off debt and even cover the cost of education for children. Experts recommend that you have at least 5-7 times your annual household income in life insurance death benefit coverage, depending on your age, how many children you have and how old your children are. Stick to lower cost term policies and avoid whole life or universal life policies in order to get the most insurance for the money. And be sure to review your policy every few years to adjust the amount of coverage based on the future anticipated expenses of your family.
Check-in Regularly: During the process of creating your financial plan for the new year, include a way to track and measure your progress. Your goals will only stay top-of-mind if you establish regular benchmarks.
Keeping your long-term financial plan at the center of decision making will help you stay on track as the year progresses. Consider major purchases in the context of your larger financial needs. For instance, if your financial goals include retiring within the next five years, how will adding a new car payment fit in with that objective. If it pushes back your retirement date, it might not be worth the cost.
Successful financial planning requires you to start with the end in mind. Changing your approach to financial planning can allow you to make more achievable resolutions and help you make stronger financial decisions along the way.
About Titan Consulting Group
Titan Consulting Group helps consumers evaluate various debt relief options and choose the right program that best fits their short-term and long-term financial goals. We work with consumers seeking debt consolidation loans, or who may be considering options like debt negotiation or bankruptcy. Through our network of partners, we can help you find the right solution to reach your goals and get back to living a life free from high interest credit card debt.
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