For many, the new year brings with it the promise to do better. New Year’s resolutions often center on the idea of being healthier and you may commit to things like eating better or exercising more. While there’s a big focus on bettering your body, have you ever considered applying similar principles to your finances? There’s an undeniable correlation between your health habits and money habits. Here are a few things to consider as you prepare for the new year:
· Check your vitals – Like scheduling an annual physical, it’s important to make time to check in with your finances. There are many tools that you can use to check your financial vital signs, and two of the most popular are a balance sheet and a cashflow worksheet.
A balance sheet is a one-page snapshot report of all your assets and liabilities. Assets are your “stuff” - things like your 401k, checking account and your car; while liabilities are your “debts” such as a mortgage or an auto loan. Subtracting your total liabilities from your total assets results in your net worth. Calculating your net worth periodically is an easy way to see if your financial wellness is growing or declining.
While a balance sheet can help you track your big-picture progress, a cashflow exercise can help you identify financial success on a micro level. A cashflow worksheet lists all your sources of monthly income followed by your monthly expenses. You can use your credit card or an online checking account tool to figure out what you spend on groceries, dining out, gym membership, etc. Comparing your inflows vs. outflows can highlight problems like living outside of your means or can uncover extra income that could be allocated to savings or debt management. Checking in with your finances by using these tools at least once a year is crucial to improving your financial wellbeing.
· Practice a methodical approach – Let’s face it, no good comes from looking up your symptoms on WebMD when you’re sick. The best way to find help is not by reading online forums, but instead by committing to an effective treatment and tracking your progress over time. The same can be said about mastering your finances. Understand that much like losing weight or breaking bad eating habits, financial success does not happen overnight. Patience and discipline are the keys to success. Leave emotion out of your financial decisions by following a suitable program for you – whether that be in your investment decisions or weekly spending habits.
· Seek professional help – It can be hard to leave emotion out of your financial decisions, and that is why working with a financial planner can be immensely helpful. Just like you consult a doctor about a physical ailment or partner up with a coach to accomplish your fitness goals, a financial planner will team up with you and provide the structure you need to succeed. Everyone’s money is personal to them, and a financial planner will help you objectively identify problem areas and provide accountability for change. The value of this partnership can be quite meaningful in your efforts to improve your financial wellness in the New Year.