The new year is upon us, and it is the perfect time for personal finance resolutions that can help you in managing your finances. You might want to start establishing your emergency savings fund this year or invest in the stock market so that you can begin building wealth.
If you are already rich, you could diversify your investments and increase your income streams as a result. Whatever the case may be, it’s important to develop and maintain healthy financial habits. This way, you can enjoy prosperity for a long time to come.
Here are some personal finance resolutions to get you started this 2023:
First of all, you will want to set a budget for yourself and stick to it. Ask yourself how much you want to spend at the grocery store every month, for instance.
If you are planning to build up your emergency fund, you might need to cut back on other areas. For example, you could consider eating out once a month instead of once a week. Sometimes, small changes like these make a world of difference.
Regardless of your income, you should be aware of where every dollar is going. You will want to include each expense in your budget. This can include rent, monthly subscriptions, vehicle expenses, and perhaps even charitable contributions. Tracking these costs will likely help you have more control over your finances. That way, if you happen to have an extra $20 left over at the end of the month, you can save or invest it.
It is often far too easy to spend more than we think we do. So a budget will almost always help you meet your financial goals, even if that means you have to make sacrifices sometimes, like opting out of buying a gorgeous pair of shoes or a new CD from your favorite artist.
It’s important to give yourself a bit of flexibility in your budget. If you are holding yourself to a budget of $1600 per month and your income is $2000, you might also want to allow for $50 of spending money at your favorite restaurant in case you end up meeting with friends or decide to order takeout for a night or two while you’re working.
Keep in mind that life is not as linear as a lot of us would like for it to be. Something will almost always come up. For example, you could fall ill and require medical treatment, or you could get in a car accident and have to pay for repairs. The Federal Reserve’s target has generally aimed for an inflation rate of 2% every year, however, it is almost always essential to practice a great deal of caution. For instance, this year we saw sky-high inflation on quite a few items. Having a bit of flexibility in your budget is arguably essential in case you suddenly have to pay a lot more than you anticipated for eggs!
Whatever the case may be, giving yourself an extra $200-$300 to spend—if necessary—is almost always a good idea. This is also why you should build an emergency fund.
Finally, it is essential to build up your savings and invest in financial assets if you haven’t already. You might want to consider buying individual stocks, but it is often most beneficial to put your money into index funds and simply hold them regardless of what the market does.
That being said, setting up your emergency fund should always be a priority. You will likely want to have enough socked away to cover three to twelve months of basic living expenses. This is usually anywhere from $6,000 to $30,000.
Setting aside money in an emergency fund is arguably essential since it is generally quite predictable. However, it is nearly impossible to receive a strong return from doing so. Some savings accounts do offer an annual percentage yield or APY, but that is usually about 4% per year at the very most. For reference, the average annualized return for investments in the stock market is about 10%, even though there are many wild swings up and down along the way.
That being said, it is essential to diversify your investments. Consider putting your money into index funds and simply holding them when it comes to the stock market. Don’t be afraid to invest in bonds if you want to play it safe. Investing in dividend stocks can also be a quick way to earn a solid return, and purchasing shares from a real estate company that offers these is often a good idea.
You might also want to invest in real estate for relatively predictable passive income, or even fine wine, gold, and silver. Generally, speaking, it’s a good idea to diversify your income streams and your investments as much as possible. This way, you aren’t solely reliant on one source.
Please contact us at Foster Financial CPA for more ideas on creating personal finance resolutions. We are happy to help!
Tax Tips for the Self-Employed – Foster Financial
Seven Must-Reads for the Aspiring Entrepreneur
Revamp Your Business Now: 9 Clues That It’s Time to Rebrand.
Avoiding Unnecessary Costs for New Businesses
Essential Tips for Starting a Business as a Digital Nomad