Four Financial Moves for the New Year
For me, this is the time of the year when I like to spend a few moments figuring out what I have accomplished financially and what I would like to accomplish in the coming year as well. While I am sure there are several things that should be done and need to be done with regards to my personal finance I have narrowed my list down to the following must do things.
To set the course for next year here are four things that everyone should do to get ready for the new financial year. By doing these things you can go into 2012 with confidence and a good Idea of what you want to accomplish. After things have settled down from the holiday, you have put the Christmas tree back in the attic and before you get back to the grind of everyday life spend a few moments to:
1. Review your finances -- This could mean different things to different people so I will try to narrow this area down. Reviewing your finances can be as simple as taking the time to organize all of your financial documents from the previous year. Depending on how organized you were during the year this may only take a couple minutes, for others this could be a HUGE task. Either way you should take some time to gather all of your important financial documents and put them in a safe place.
Next take a moment to review your income from the previous year and your expenses from the same time period. The income part should be easy; all you have to do is look at your last pay check stub to see how much income you made last year. For most people this will shock you or maybe not. Now that you know how much you made last year lets figure out what you did with it. You should be able to determine what your major expenses were, like what you spent on your vehicle. If you made a car payment all last year simply multiply your payment by twelve to see how much of your income was spent on making car payments. You should be able to do this for every major bill.
By doing this you will be able to see what you need to work on for the upcoming year. Also, when reviewing your finances be sure to check your insurance policies (life, health, disability, auto, and home) making sure that you are not either under or over insured. Also check that you have the correct beneficiaries listed on all polices. Check to make sure your will is up to date and if you don’t have a will GET ONE. The last thing to do while reviewing your finances is to gather your tax records from the year and be prepared to file your 2011 tax return as soon as possible (unless you are like me and you owe then you can wait a while)
2. Review Your Net-worth – most financially successful people, focus their time and attention on their net-worth. The one true path to financial independence is to increase your net-worth year after year. Your net-worth is basically the total of the fair market value of all of your assets (home, car, cash accounts, retirement accounts and personal belongings) minus the total of all the debts that you owe. The difference between the two is your net- worth. This number should be a positive number, and to build wealth your net-worth should go up every year.
By doing this you can see the effect of the decisions that you made financially last year and how those decisions impacted your net-worth. This is also a good time to review the debts that you have accumulated and more importantly come up with a plan to reduce those debts. The quickest way to increase your net-worth in not by getting more assets rather reducing the liabilities associated with the assets that you currently have. You should make every effort to quickly reduce your short-term debt (credit cards, personal loans) and continue to manage your longer term debts (mortgage).
3. Set New Financial Goals – Yes I said it, set some financial goals. I am convinced that most people are not where the want to be financially because they don’t have goals. It is a well-known fact that those who establish, write down and track goals accomplish more. After looking back at the past year you can tell if you actually accomplished what you wanted. Now is the time to decide what you want to accomplish next year and set some written goals. Next, take a few moments to develop a plan to make those goals become a reality. I have written several other articles on goal setting, there is even an entire chapter dedicated to goals setting in my latest book called “Spend Everything”. Bottom line you need goals so that you will know where you are going financially.
4. Simplify Your Finances – The final thing to do to get ready for next year financially is to make your life as simple as possible. You can take a lot of the drudgery out of financial record keeping by streamlining the process. I personally use an online bill payment system, which is free at most financial institutions; the key is to examine every financial relationship that you have to see if it is something that you would like to continue to do next year. If not then get out of the relationship, when was the last time you visited the gym with any regularity? Maybe it’s time to cancel your membership and save a few dollars in the process. You can walk for free if you are serious about getting in shape.
I realize that there are probably several more exciting things that you can do with your time during the holidays but I firmly believe the saying that says “your position in life today is the result of the decisions that you made yesterday” if you want a better financial outlook next year do something different this year. Remember money is only a tool that allows us to do what is important in life, you have to manage your tools to complete the job.
This article was written by Lonnie R. Mathews for the Who's Minding Your Money blog. Lonnie is an author and speaker in the area of personal finance. To learn more about Lonnie or to contact him visit www.lonniemathews.com
2 comments:
Very well said sir! Happy New Years to you!
Very well said sir! Merry Christmas to you and yours!
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