How To Start Your Finances Right for The New Year?
Whether 2024 has been a great year or not so great a year for you financially, the upcoming year is a great time to plan and take steps now to feel more financially prepared.
Here are five areas you can start to make changes to jump start the new year!
#1 – Review your credit score
If you plan to apply for a mortgage or refinance a current mortgage, purchase a car, or qualify for an apartment, it is good to check your credit score to know if you are in a good position to qualify for lending at a reasonable interest rate. It is expected that 2025 we will see the federal reserve continue to cut the interest rate as low as 3-4% (Forbes, November 2024). If your score is below a qualifying threshold, you have time to address any issues that may cause a higher interest rate or denial of lending.
#2 – Build a Reserve Fund
Some advisors like to call the reserve an “emergency fund” I prefer to use the word “Reserve” since the monies saved can be used for unexpected costs, unplanned changes in your employment, or to watch the funds grow over time. The recommendation is typically to save 3-6 months worth of your monthly expenses. If 3-6 months of expenses is significant you may consider taking a hard look at reducing your monthly costs (will discuss in #3), and starting to save at a comfortable amount per month to get started.
#3 – Budget – Budget
“Living within our means” is the new normal. Creating an effective budget that you can live by is an essential tool that brings clarity and financial security to controlling your costs. Once you determine your actual monthly fixed expenses (rent, car note, mortgage, insurances, etc.) the variable expenses (those that fluctuate based on use) can be projected based on the average charges per month. The goal is to keep the variable expenses at a reasonable amount, utilizing vendor payment plans is a great option to allow for fixed payments per month, further assisting you in controlling costs. After the budget is completed and netted against your monthly income you can determine if there are any funds available to pay off debt, save, plan for special events (vacation, birthdays, holidays, etc.). If there are no funds available, the fixed and variable expenses need to be revisited and adjusted to allow at minimum a break even. The goal then becomes to live within the budget, and make revisions as needed to get to the most efficient budget for you.
#4 – Life Insurance
Protecting your assets and planning for changes in life are important and contribute to the feeling of financial security. Knowing you have your finances in order to protect your loved ones brings peace of mind. Depending on your financial situation, and amount needed to cover paying off your debt, college education for children, sustaining spouses lifestyle and living costs will determine how much of a life insurance policy is needed. The type of policy will depend on what you can afford in an annual premium, if you want any living benefits should you become unable to provide for yourself. A financial planner can assist with what options are best for you.
#5 – Wills, Trusts, Health and Financial Advance Directives – Planning for the inevitable
How many times have we watched a celebrity or family member pass away and there is no will or trust to protect the family. Families are forced to deal with probate court which requires an attorney and tends to drain the estate further financially. Be proactive and meet with a probate attorney to create at minimum a Will (which can still involve probate), a Trust (gives more protections against probate court), also consider a health advance directive in the case you cannot make decisions in cases of medical emergencies, so someone you trust can handle your medical wishes, and manage your finances.
These are five areas that will get your 2025 off to a great start!
Contributor:
Nicole Freeman-Kirkland, CPA
By The Numberz CPA, PLLC
Atlanta, GA
