It’s the New Year, and likely that you have a fresh, long list of financial goals you’d like to achieve. Maybe this will be your year to buy a house, or you have your eye on a shiny new car. Perhaps your goal is something small yet impactful like finally mastering the art of budgeting.
As a CERTIFIED FINANCIAL PLANNER ™ professional, it’s my job to help people set priorities for their money. Here’s my take on the financial resolutions you might want to skip this year and still earn a gold star in being smart with your money. (If you want ideas for ones to add to your list, read here.)
“I want to pay off my student loan debt first”
You may be one of the 45 million people who owe the staggering $1.52 trillion in student loan debt in the U.S. For many people, student loan debt causes stress, anxiety, and even depression as you try to figure your way through paying it off. Even so, paying off student loans before you tackle other debt is a financial resolution to consider skipping this year.
Student loan interest rates currently range from 5% to 7%. Your rate also depends on the year you borrowed. Yes, those numbers sound high, but they are far below the average interest rate that comes with most credit cards (about 17 percent).
Getting rid of your debt should be a priority. However, you may want to focus on which is the “right” debt to pay off first. If you’ve got extra cash above the minimum payments, think about the following:
- If you are enrolled in a qualifying repayment plan, your student loans might be eligible for loan forgiveness in the future, which might make payoff less of a priority
- Paying off your highest interest rate debt first saves you the most money in the long run
- Remember that time is your most valuable asset when it comes to retirement savings, so if you have extra cash after you pay off your credit cards, consider putting it into your 401(k) or IRA
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“Live in the present and stop obsessing about money”
Okay, sure, we can all benefit from enjoying each day and cutting back on our worries. But that doesn’t mean you should put all your faith in things “working themselves out” on their own. You’re the best person to protect your financial future.
Financial risks aren’t fun or sexy to talk about. Who wants to think about insurance when you could be focusing on more amazing goals like that dream trip to New Zealand? But waiting to shore up risks until you’re in a crisis will leave you more stressed than just taking care of them now.
If you took some time to think about it, you could probably pull together a list of a few financial risks that you’re exposed to right now. Here are a few possibilities to inspire you to minimize risks:
- Life insurance. Do you have enough life insurance to adequately help cover the financial needs of your loved ones if you die? Not everyone needs life insurance, but if you own a home, are married or in a committed relationship, have children, or are the primary breadwinner, it’s likely you are a good candidate for some life insurance coverage.
- Disability income insurance. Your paycheck is the largest asset you have. It’s how you pay your bills and can afford to do all the things you do in life. It makes sense to protect your paycheck with some disability insurance. Disability income insurance protects a portion of your income if you become to sick or injured to work – typically 45-65 percent of your pre-disability monthly paycheck. If you pay the premiums with after-tax dollars, the benefits can be tax-free. The company you work for might already offer some disability coverage. First, check with your HR department to see what your benefits are, and if your employer doesn’t offer group disability insurance, you can purchase your own individual policy.
- Retirement. Are you saving? It’s nearly impossible to figure out exactly how much money you need in retirement when you’re still in your 20’s, 30’s and 40’s because you’re so far away from retirement. However, what you can focus on is increasing the percentage of your income that you’re contributing to your 401(k), IRA, or ROTH each year. It goes without saying that, if your situation permits, you’ll want to contribute at least up to your employer’s 401(k) match if you have one so you don’t leave money from your employer “on the table”.
- Emergencies. How much money do you have set aside in case your car breaks down, your water heater dies or you get laid off from your job? The number of different possible financial emergencies is endless. One rule of thumb is to save enough money to live for three to six months without any additional income. Saving money in a high-yield savings account might help you reach that goal even quicker.
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“I need to be debt-free to be happy in 2019”
A large part of your financial success is your money mindset. Since we don’t sit around and talk about money with our friends, it’s easy to feel stressed about debt or that you’re the only one who has made a money mistake. Right now, it’s trendy to be young and debt-free.
It’s true that being debt-free allows you to use your money to fund your goals month after month in powerful ways, but it doesn’t equal happiness. Life is full of ebbs and flows – one minute you’re flush with cash and the next you’re facing an emergency that drains all your savings. Life and your bank account are in a constant song and dance.
Rather than focusing on being debt-free to be happy, pay attention to the positive actions you can take with your finances.
- Know your numbers. Whether you use an app like Mint or You Need a Budget or an Excel spreadsheet, know how much you’re spending and in what categories (such as eating out, shopping, entertainment, etc.). That will allow you to spot trends and make changes so you can route more money towards your priorities.
- Make a plan. Get a debt payoff strategy in place. Following a debt payoff strategy ensures that you’re paying off your debt in the best way possible. Some people focus on the smallest debt first, and others tackle the highest interest rate debt first. Either way, you may want to devote any extra funds you have towards paying that debt off.
- Choose happiness. You can choose each day what you focus on. Choosing to be happy in any financial situation will help you think clearly in making financial decisions. Remember, money is just a tool to help you achieve your goals but doesn’t define who you are.
It may seem untraditional, but this year why not make two lists: financial resolutions to keep and financial resolutions to skip this year. Why not focus first on goals that will help move you toward your desired financial destination? I’ve adopted this plan for several years now, and it keeps me focused on the right financial resolutions for my situation every year while letting go of the choices that hold me back.
Shannah is a CERTIFIED FINANCIAL PLANNER™ professional and is a millennial money financial strategist. She runs the blog Your Millennial Money, and is host of the Millennial Money iTunes podcast. Her husband Jeff is a travel journalist, but when they aren’t traveling she loves to challenge herself in the kitchen by creating a culinary masterpiece worthy of Food Network fame (she can make a mean risotto).
The information provided is not written or intended as specific tax or legal advice. Haven Life Insurance Agency does not provide tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel.