Potential home owners who have put getting into the housing market at the top of their to-do list next year may not realize how many steps it takes to make it to the finish line. As a real estate pro, now may be the perfect time to share a few planning tips for where they can begin this January.
"Roughly 45 percent of Americans make New Year’s resolutions each January, with many of their pledges being financial in nature," says Raz Daraban, communications manager for personal finance site WalletHub. He says his company engaged a panel of financial and consumer psychology experts to create 15 resolutions "in order to help progress-minded people improve their money management in the New Year."
- Get Reacquainted with Your Finances: Check the status of all your financial accounts and evaluate your monthly cash flow.
- Make a Budget: According to survey data from the National Foundation for Credit Counseling, only 39 percent of adults have a budget. The best way to tackle this task is to gather together all of your bills from the past few months and then make a list of your recurring expenses in order of importance. You can then compare the cost of these expenses against your monthly income and eliminate any outlays that would outpace your spending power. Later, compare your ensuing monthly spending to your planned budget to make sure you’re abiding by it.
- Implement the Island Approach: This is a personal finance technique based on the theory of compartmentalization that encourages consumers to isolate different financial needs on different financial products as if they were a chain of related islands. The approach might entail getting one credit card for everyday purchases that you can pay off in full by the end of the month and another for revolving debt.
- Automate as Much as Possible: One of the most easily avoidable mistakes that people make in regards to their finances is missing due dates. Late payments can have serious ramifications on your financial life, but avoiding them is as simple as setting up recurring monthly payments from a checking account. Remember to review your monthly statements in order to avoid being overcharged or missing a sign of fraud.
- Build an Emergency Fund: Roughly 56 percent of Americans do not have a rainy day fund, according to the Financial Industry Regulatory Authority’s National Financial Capability Study. WalletHub recommends ultimately building a fund with about 12-18 months’ take-home income, though that won’t happen overnight, so they suggest you chip away at it over time. Timing-wise, they recommend actually creating a 6-month safety net before beginning to pay down debts in earnest.
- Get Out of Debt: Some of the steps mentioned above will reduce future reliance on debt, but you should also focus on eliminating existing balances in 2015. WalletHub suggests transferring current debt to a 0% balance transfer credit card and using a credit card calculator to find the best method to pay down your debt.
- Improve Your Credit Score: WalletHub says the difference between good and bad credit is roughly $650 in credit card payments, $1,400 on your auto loan and $2,300 on a mortgage each year. But they also note that good credit extends well beyond that, impacting insurance premiums, your ability to buy, and the types of loans you’re eligible for. The best way to improve your credit score is to maintain an open credit card account that is in good standing. You don’t even need to make purchases with your card. If you don’t have the credit standing necessary to qualify for a normal credit card, you can always place a refundable deposit on a secured credit card and benefit from what’s tantamount to guaranteed approval.
- Increase All Savings by 15 Percent: The best approach to meeting all of your various savings needs is to establish separate accounts for each, which you fill with automatic monthly contributions from a bank account. This provides useful perspective on each of your goals and enables you to better track progress.
- Give Back to Charity: Charitable giving is beneficial in terms of self-perception, tax liability, and community building. It's a laudable goal for each of us in 2015.
- Do Your Taxes Early: Procrastination breeds costly mistakes, as well as filing late and underpaying, both of which will incur expensive penalties.
- Set a Good Financial Example: Children tend to learn by example, which means the young people in your life are likely internalizing how you handle money – information that will serve as the foundation for their future relationships with finance. Improve your own financial performance in order to impart beneficial lessons to them.
- Take Commonsense Steps to Fight Fraud: Identity theft has become a major theme for both the modern consumer and corporate America, with a number of notable banks, retailers and entertainment companies getting hacked in 2014. While there is only so much you can do if your credit card information get pilfered from a store, there are some steps you can take to reduce your overall risk. Shred sensitive financial documents before throwing them away and put a lock on your mailbox when you’re out of town. Making a credit card your primary spending vehicle and only signing for debit card purchases (rather than entering your PIN) will confer the most robust fraud liability benefits on you. Checking your credit report regularly will also enable you to spot fraud early on.
- Mind Your Overall Health: There is a clear connection between physical, emotional, and financial health. Not only are health care expenses the leading cause of bankruptcy in the United States, but they also comprise a great deal of our annual spending between insurance premiums, out-of-pocket costs, gym memberships, and more. Regular exercise and healthy eating will help keep such costs low and may lead you to make wiser financial decisions that focus on the long term.
- Help Other Consumers by Sharing Your Experiences: One of the best ways to aid others in the pursuit of financial responsibility is to share your experiences with different financial products, companies, and professionals. Reviews have the power to drastically improve transparency in the personal finance space, enabling people to avoid the bad apples, gravitate to the best deals, and ultimately save money.
- Stress Test Your Finances: Prepare for worst-case scenarios by putting your personal finances through the paces – much like banks and other financial institutions are required to do in order to verify their stability. Are your finances equipped to handle the job loss of the family’s breadwinner?
Source: "WalletHub’s 15 for ’15: Financial Resolutions for the New Year," WalletHub (Dec. 29, 2014)
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