Most of us aren’t very good when it comes to financial decision making, hence the proliferation of personal finance magazines, articles, blogs and so forth. All too often, we fritter away our income without any forethought as to our current cash flow or future financial well-being.
But, with the New Year comes a new opportunity to get a grip on your personal finances and build a better financial future. In that gest, here are seven financial resolutions to help you kick-off the New Year.
- Establish suitable life goals
No matter what stage of life you’re at, setting suitable life goals is an important first step before making any major decisions in life. Without life goals, people tend to lapse into impulsive behaviours that are seldom beneficial in the long-term. Commit to your goals, write them down and regularly review them, otherwise you merely have wishes, and wishes are rarely granted in real life.
- Eliminate your debt
Resolve to lower your debts. Borrowers have been lucky over the last few years due to exceptionally low interest rates, but as interest rates rise, every pound of accumulated debt will become a heavier drag on your entire financial life. From a wealth building perspective, unless you are utilizing credit for productive endeavors, such as profitable investments or business ventures, then eliminating unproductive debt is essential if you plan to retire with even a modicum of wealth.
- Build an emergency fund
Life is unpredictable. An emergency fund can lead to greater financial security, so you should commit to building and maintaining an emergency fund (a buffer fund) to cushion you against the financial hiccups – the loss of a job, home repairs or health problems. As a guideline, an emergency fund should cover at least six months of living expenses and be liquid (easily accessible). Even if you are finding it difficult to save you should at least start with something, no matter how small – just £10 a week becomes more than £500 at the end of the year.
- Design a budget
The only way to eliminate debt and build an emergency fund is to spend less than you earn, which requires an analysis of your cash flow to establish a budget. Sticking to a budget and spending less than you earn isn’t always easy, but it is crucial if you want to build wealth and live a financially worry free life. By understanding how much money you have coming in and how much is going out, you can better understand how to save and spend your money for your long-term financial benefit.
- Diversify your household assets
If the financial crisis has taught us anything, it is the value of diversification. Most people know never to put all their eggs in one basket, especially when it comes to investing. This applies to your entire household finances, too. For example, if you’re in a relationship, you should consider working in different companies, or even industries to your spouse to avoid being doubly caught out by a company failure, or industry downturn. In addition, for most families, their greatest wealth is tied up in their property. Consider opening a NISA account to build up your cash and fund holdings to further diversify your household assets.
- Write a will
There are many advantages of making a will – the main one being peace of mind. Financially, if done correctly, wills can be utilized to make savings on inheritance tax. Most importantly, who knows best who to bequeath your assets than yourself, but if you fail to make a will, you’ll be leaving this important decision the laws of intestacy. For most people, writing a will is a simple process, for which there are many free templates available online (Free Legal Documents from CompactLaw). For others with more complex needs, it may be more than worth the cost of using a solicitor.
- Invest in a new skill
The world is changing, and nothing is changing faster than the world of work.To stay competitive, you must continue to develop skills that add value to your employer or society at large. If you fail to keep abreast of, and adapt to, industry or technological changes, you may find your skills becoming redundant, which will more than likely have a negative effect on your finances. One of the greatest investments we can make as individuals, is the investment in our human capital.