Contributor: Kristen Fricks-Roman
Company: Morgan Stanley Wealth Management
Title: Financial Advisor
The beginning of a new year is an exciting time to start fresh by setting new goals. However, feelings of excitement and anticipation can quickly become overwhelming if we choose too many goals or don’t back them up with solid planning.
If improving your financial health is an important focus for you in 2018, your strategy should depend on both your current situation and your priorities. Following are six of the most common financial resolutions I hear and ways to develop an action plan that helps achieve them.
Being more committed to a budget. Even with the best of intentions for sticking to a budget, we sometimes get sidelined and lose focus. Re-examine your budget to ensure it’s up-to-date, realistic and something you can stick to. If not, make the appropriate adjustments. Some thought-provoking questions to ask yourself about your budget include:
- Does your budget accurately reflect your everyday spending habits?
- Do you expect to make large purchases during the year that you need to plan for?
- Do you intend to take a vacation?
- Do you have a plan for year-end holiday gifting?
- Are your debt payments affordable? Can you afford to increase then to pay off debt faster?
- Does your savings plan account for both short- and long-term goals?
Talking to family about finances. Discussing money can be difficult, but having a meaningful conversation with your spouse or partner, and your children, about finances can make a significant difference. That way, everyone who is impacted by your budget has a better understanding of the big picture and why sticking to the plan is important. For example, you might choose to discuss how you can reduce credit card or car loan debt, or how cutting back on discretionary spending contributes to your mutual goals.
Being more informed about investing. The ins and outs of how investing works may seem difficult to understand, but many helpful resources are available online and in bookstores. Education is empowerment. As you learn more, you can position yourself to make better decisions. One critical principle to remember: the sooner you begin investing, the more time your money has to grow.
Maximizing retirement contributions. If you currently participate in a 401(k), 403(b) or 457 plan through your company or organization, evaluate the amount of your contributions and whether you can allocate more to the accounts. These plans have become major sources of retirement savings, and often employers offer a matching provision. That’s like free money. Check your plan to see if you can take advantage of such a match. The maximum contribution limit for 2018 has been increased to $18,500. Also, individuals older than age 50 can contribute an extra $6,000 as part of the “catch-up provision” that enables those approaching retirement to save more. These contributions, when withdrawn, are generally taxed as ordinary income.
Building an emergency fund. Whether it’s unanticipated car or home repairs, medical or dental expenses not covered by insurance, or an unexpected job loss, an emergency fund — separate from your regular savings account — is important. Typically, an emergency fund should hold the equivalent of five to nine months of your regular expenses. Consider setting up an automatic transfer to your emergency fund so it requires little effort on your part but creates gradual movement toward being more prepared if you aren’t already.
Updating financial documents. It’s a good idea to take a look at your financial documents and ensure they are up-to-date with the correct information about you and your beneficiaries. Documents like your will, living trust, power of attorney and beneficiary designations for 401(k) or IRA plans are incredibly important for your loved ones, should anything happen to you. You want to be sure the documents reflect who you want to make decisions about your finances and how your assets should be handled.
Ultimately, the process of setting and achieving your financial goals is about holding yourself accountable. Stick to your plan, whether it is a new budget, more active investing, or funding your emergency fund. If it helps, ask trusted friends or family members to hold your feet to the fire. Talking about your financial goals will help you commit to them and stay motivated to achieve them.
Kristen Fricks-Roman CFP®, CRPS®, is a financial advisor and senior vice president at Morgan Stanley Wealth Management, Atlanta. She can be reached at [email protected].
The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Investing involves risks and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Wealth Management, or its affiliates. Morgan Stanley Smith Barney LLC and its Financial Advisors do not provide tax or legal advice. Individuals should seek advice based on their particular circumstances from an independent tax advisor. Morgan Stanley Smith Barney, LLC, member SIPC.