The first day of a new year is exciting. We look forward to new victories and challenges, friends to be made, ideas to be shared and resolutions to achieve -- to improve our health, spend more time with family or take a trip to a new place. Many of us resolve to improve our finances, but we may not know where to begin. And though each of us will have different financial goals, we can all benefit by making simple changes.
A budget is a simple way to see how and where your money is spent. Though it can be time-consuming at first, using a simple spreadsheet program, or pencil and paper, to track exactly how much you spend can save you thousands of dollars this year. Evaluate where you can trim costs. Set a monthly budget based on these numbers, and take time at least once a week to enter expenses into your worksheet. After a short time, budgeting won't feel like a chore. Instead, you'll see it as a helpful tool to keep your family's finances on track.
Commit to controlling your debt. Short-term debt -- credit cards, car loans and personal loans -- often comes with a cash-draining interest rate. Whether it's reasonable to completely eliminate your debt or simply to reduce it, make a commitment now to pay a little extra toward debt. And consider this: Research shows that families feel more financially secure the higher their savings-to-debt ratio. To boost this ratio, avoid using credit cards. If you can't pay for it in cash, think about whether you really need it.
By keeping costs down and reducing debt, you may be able to free up cash for savings. Research shows that families get an emotional lift simply through the process of saving, no matter the size of their savings accounts. If you don't have one, start an emergency savings fund, separate from other accounts. Generally, you should strive to sock away three to six months of your monthly expenses. If you're married, remember to account for both salaries. Families may think having one savings account is all they need, but keeping emergency savings in its own account can prevent you from using that cash for non-emergencies.
Take time to evaluate the large purchases or investments you plan to make this year and in the years ahead. If you plan to purchase a car or home or send your children to college, create a timeline and determine how much you plan to spend -- and be realistic. Set aside money each month to put toward these goals. You may consider a separate account for each goal, which can help you keep track of their individual progress. This type of saving has its own benefits, too. Research shows that the more Americans put away each month, the less financially stretched they feel.
Investing in a home or your children?s education goals is great, but don't forget to invest in your own future. If your employer offers a 401(k) or other retirement plan, be sure you are contributing to it -- at least enough to secure the company match if one is offered. If you don't have access to an employer-sponsored account, talk to a financial advisor about setting up an Individual Retirement Account (IRA). Even during times of market volatility, it's important to continue investing regularly for your retirement.
Resolutions are often long-forgotten before year-end. But through simple changes and a commitment to improving your finances, you can be celebrating your success when ringing in the next New Year.
Joe Morrin is Vice President and Director of Financial Planning at First Command Financial Services, Inc. Prior to joining First Command in 1986 he spent several years in the U.S Army, serving as a Captain at the time of his departure.
For more tips on setting financial goals for the New Year, visit Military.com's Finance Channel.