Each time an old year draws to an end to make way for the new year, you make resolutions you vow to see through until the following year comes in.
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The promises you make to yourself and the universe range from those that zero in on health to those that prioritize romance—for the former, you’ll get more physically active and lose X number of pounds. While for the latter, you’ll be more involved in the dating scene and land yourself the partner of your dreams.
Whether you can commit to those with the earnestness of a sinner in the confession booth, you deserve some kudos. After all, it takes a lot to accept you have so much to improve to change for the better. With that said, it’s high time you add another subject to your go-to list of new year’s resolutions: think, finances.
Yes, money matters matter as much as your health and love life. It’s even safe to say that if you neglect your financial well-being, your health and romantic prospects may suffer, too. After all, being broke is stressful and does not look good in a person’s dating resume.
So, to avoid that, at the start of every year, confront your financial state head-on. Ask these eight personal finance questions to determine your financial goals better and how you can achieve them.
1. What Are Your Financial Goals?
If you have already set long-term financial goals for yourself, then you’re already on the right track. And if you had made the clever decision of starting your savings early in your career, then you’re pretty much set to succeed.
All you’ve got left to do is pinpoint yearly financial objectives that prepare you for those bigger plans. Remember that a long-term goal’s success relies upon what you do here and now. That’s where short-term priorities come in.
Tip: Here, it’s important to get specific. For example, if you’re planning to invest in a house in three years, and you know how much you need for the down payment, look at how much you’ve saved for this particular goal. Compute how much more you need. Divide that amount with the remaining years you still have before the deadline. The value you get is your savings goal for real estate for the current year.
2. How Does Your Emergency Fund Look?
Ideally, you already have an emergency fund. But if you have yet to set aside money for contingencies, do not fret; you can always start now. As they say, it’s better late than never.
Now, you might ask: for what do I need an emergency fund? Well, because you never know what awaits the day after today. No matter how securely you feel now, finance-wise, your world can go topsy-turvy in an instant. That’s something a lot of workers have realized during this pandemic, where many lost their jobs.
Should you lose yours, pandemic or not, you need to have enough to get you through until you bounce back from your misfortune.
Tip: Save up at least three months’ worth of your living expenses. That should be enough to fund your lifestyle while you’re in between jobs.
3. How Does Your Income Stream Look?
When it comes to ensuring that your financial prospects are in order, the amount of money that goes into your personal account matters.
Suppose you have a stable career as an employee, gauge whether the salary you take home every month aligns with your financial goals, both short- and long-term. The same goes if you are a freelancer, juggling projects. Make sure you hustle enough to finance your chosen lifestyle.
Tip: For employees, plan to negotiate your salary. Most managers will agree to raise your gross pay if you have proof to back up the rationale for your request. For freelancers, network like a pro. That will land you more projects.
It also won’t hurt to explore business opportunities, especially those you are most passionate about. Who knows, you may succeed in a small business venture that will allow you to quit your full-time job one day.
4. How Do You Best Settle Outstanding Debts?
Maybe this is beyond your realm of concerns because you’re not the type to borrow money. Should that be the case, then skip this part and move on to the next questions.
However, if you do have debt, the rule of thumb is simple—pay them as soon as you can. Do not allow them to accumulate interests and balloon into an intimidating amount. That will be enough to derail whatever financial goals you may have.
Tip: You must be smart when it comes to loans. Prioritize smaller debts. Seeing the results of those efforts will inspire you to continue paying off what you owe until you’re entirely debt-free. Or settle those accounts with the biggest interest rates first. Lastly, even when you’re strapped for cash, make sure to pay the minimum balance for each account.
5. How Does Your Credit Score Look?
Your credit score matters. That’s another reason why you want to pay off debts on schedule. Now you might wonder: why must I bother with my credit score when one of my financial goals is to be debt-free?
The reason is that should you decide to make a big purchase in the future, like a residential property, chances are you will apply for financing. And the loan providers will look at your credit score and report to determine whether you’re qualified for a loan.
Tip: If you maintain a credit card account, reduce utilization to no more than 30%. Also, make sure you pay utility bills on time. Your car or mortgage payments should not get behind schedule. Lastly, look at your credit report and gauge its accuracy. Contact relevant authorities if there are errors that need to be removed or corrected.
6. What Are Your Personal Priorities for the Coming Year?
Let’s be real: the lifestyle you choose impacts your finances. So, before the new year, decide how you want to go about the next 12 months socially. Will you be meeting friends regularly on weekends at dinners and parties? Do you plan to treat your family to vacations?
These are expenses that will make you happy. So do not fall into the trap of depriving yourself of these purchases just so you can funnel the funds into your savings. You work hard, and you deserve everything that will make your soul sing. Just make sure you account for them in your monthly budget.
Tip: Come up with a monthly budget and stick with it. If there’s an expense you failed to anticipate, find the funds from a source that’s already in your budget list. Here, you’ll need to compromise. For example, get a portion from your weekly grocery budget until you have saved enough for a concert ticket—that is, without starving yourself.
7. How Was the Previous Year for You, Finance-Wise?
To look forward with wisdom, we need to look back with objectivity. So, when you’re coming up with financial resolutions for the coming year, do not neglect what happened in the year that transpired. You’ll glean worthwhile lessons that will guide you best on your financial journey.
For example, zero in on money slips you’ve committed. Come the new year, you’ll be more aware of money matters where you’re most susceptible to losing control.
Tip: List down the financial goals you failed to achieve last year. Include the specifics of why those failures happened. Come up with an action plan whose goal is to limit the likelihood of those failures occurring again.
8. How Best to Approach Your Tax Obligations?
As a part of the labor force, you’re expected to pay income taxes. If you’re completely tax-compliant, congratulations. The country owes you a pat on the back. Meanwhile, if you have back taxes, remember that the IRS does not want you to suffer. It has programs meant to assist taxpayers facing tax troubles. Just make sure you accomplish and deliver your tax returns.
Tip: If you’re busy with your career or you spend most of your time abroad, it’s best to hire a tax professional to carry out tax duties on your behalf. Doing so assures you that your tax documents are expertly assessed and duly filed. That’s one stressful item off your to-do list.
Financially responsible resolutions
Whether you wish to pursue a short-term financial goal or a long-term plan, such as when you’re considering investing in real estate, asking crucial financial questions at the start of every year helps. That’s how you see where you’re at, money-wise.
In this matter, you can’t afford to get delusional. You have to be realistic. That means confronting where you fell short last year and recognizing opportunities for improvement you may have in the coming year. If you get honest with your answers, you’ll come up with more practical financial resolutions.