New Year’s Resolution: 2023
When it comes to fresh starts, there is no better time than the start of a new year. People are hopeful, excited, and have new energy to start the year strong.
This article aims to help organize, create a process, and ensure the correct actions are being taken. These actions will help one to thrive now, and in the future, and relieve an immense amount of stress.
Through discipline and optimism, one could find themselves on the path to a healthy and happy financial life, no matter their income level. This is all made possible by paying off debt, saving up, and automating one’s investing.
Pay Off Debt
Some people feel like they can never dig themselves out of debt. When every month you have expenses that go to a credit card, a car, and other debt, it may seem like there is nothing that can be done.
To focus on paying off debt, it is important to realize that as long as you aren’t going backward each month, it is very important to put any excess into paying down debt. Some people carry debt with them, yet have a lot saved up in a checking/savings account. It is crucial to use those funds to pay down or pay off items that are being paid for month over month.
This concept is so important to financial freedom that it is necessary to sell some things you may not need any longer. Being debt free allows someone to build up an emergency fund, save aggressively for retirement or other goals, and grow net worth exponentially. Pay for your future self, not a bank or a creditor.
If you need help starting a budget and paying off debt, our Financial Coach, Lindsey Curry would be more than happy to help you with that.
Save Up
Your non-mortgage debt is paid off, congratulations! Your monthly expenses are still going toward taxes, rent/mortgage, utilities, etc. What should be done with the rest? Whatever it may be, it is important to treat yourself as a reward for your diligent work on paying off debt and completing baby step 2.
Having this extra money per month is the greatest advantage someone can have as they start to save. Building up an emergency fund should be the next priority. An emergency fund is a personal budget set aside as a financial safety net for future mishaps or unexpected expenses and should be in the amount of 3-6 months of expenses. For example, if someone pays a $1,200 mortgage and their other utilities, etc. add up to another $1,300, then in this situation, they would need to have $7,500 at the very least in their savings account at all times.
Saving an emergency fund is great because there is a buffer when something unexpected comes up that you wouldn't have previously been able to afford. This could be needing tires, paying for an unexpected injury, etc. Events like this could possibly lead to going into debt if not properly buffered by the emergency fund.
Automatic Investing
Fantastic, you have moved on to investing! Debt is paid off, an emergency fund is funded, now what?
The extra money first went towards paying down and paying off debt. Then the extra money went to an emergency fund. The next place it goes is into a managed investment account. That is the fun, but difficult part.
It is a great feeling to have peace of mind. No immediate debt, and a fully-funded emergency savings account. Now it is time to enjoy all that extra money, right? Yes, and no. As previously mentioned, it is so important to reward yourself for the multi-year efforts that have been given. Go on vacation, and buy yourself something nice.
One thing to know about human nature is that if there is money in your pocket, you’re going to spend it. If there is no money in your pocket, you just have to go home. That is a lot of what disciplined savers do.
Now that you are in a position where there is surplus cash flow, the greatest thing to do for yourself is to set up an automatic withdrawal from your bank account, into your investment account. Check out this video about Dollar Cost Averaging for the benefits of regular investing. This removes the temptation to spend money on things that aren’t always needed and delays gratification for the future.
The power of speaking with your advisor
As overwhelming as the stock market, timing, capital losses, and more can become, always feel free to use an advisor you know to just ask questions. It is our passion to help people understand these topics.
When it comes to the life work of our clients and prospects, no decision is ever taken lightly. No account value is disregarded because all concerns and questions hold such a heavyweight in a time like this.
We hope you’ve learned a great deal from this article, and more importantly, reduced some stress from your life today.