ORLANDO, Fla. – Resolutions are popular for New Years, and then often set aside as the year gets going.
Americans may have getting their finances in order as one of those resolutions, and financial experts say it’s one they should start working on now.
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Americans owe some $930 billion in credit card debt, according to the Federal Reserve Bank of New York, 15% more than in 2021. The total household debt for Americans reached $16.51 trillion.
Nancy Hecht, a certified financial planner in the Orlando area, said now is the time to prepare to accomplish your goals.
“Certainly writing things down makes them more real,” Hecht said.
Hecht outlines five things you should consider doing to stick that financial resolution.
Cash flow audit
Where is your money going? Hone in on your budget. Hecht gives her clients a sheet that breaks down their monthly expenses from mortgage or rent to how much they spend on gas. Not sure what your expenses are? You should be keeping an expenses folder. Start one.
“With prices what they are today, a review of cash flow is very important,” Hecht said.
Review your loans
Where does your mortgage stand right now? Auto loan? Other loans? Can you consolidate? Can you pay them down?
“Refinancing might be tough right now because rates are so high,” Hecht said. “Maybe paying down a mortgage to drop PMI if that is still being paid.”
Credit card audit
With credit cards eating up so much American debt right now, paying them off is of the utmost importance, especially with interest rates going up. Go through all of your credit cards and check balances and interest rates.
“What has happened to their interest rates? Has it increased?” Hecht said. “Time to shop for a new one and make it a goal to not carry a balance.”
What if you have balances you can’t pay off right away?
“Then attack the highest interest rate one with any extra payment that can be made, pay it off, move on to the next one,” Hecht said.
Needs vs. wants
Of course, that’s all very well, but what if you don’t have the extra money to pay those accounts down? Hecht said it’s time to look at what you need vs. what you want? Figure out where to cut expenses.
Look at your subscriptions, do you need all those streaming services? Could you make do with cheaper cable or phone plans? Are there places where you can cut spending to improve cash flow to your financial priorities?
If you’re lucky enough to have a 401K or some other savings account, check how your account has been doing. Are there changes you should be making to your funds? If you have employee match, are you taking full advantage of it?
“Employees should be sure to contribute enough to their 401K plan to get the full match,” said Paul Gregg, who teaches personal finance at the UCF College of Business. “If your plan will match up to 4% for your 5% contribution, that would equate to an 80% return before you even invest the money.”
If you want to make changes to those tax-deferred accounts like 401Ks and traditional IRAs, Gregg says not to worry too much about volatility in the market because you are playing a long game with those investments, but be sure to get a good investment mix.
“One common rule of thumb is to take 110 minus your age to determine how much you invest in stocks with the balance invested in bonds,” Gregg said. “For a 20-year-old, 110 minus 20 equals 90% stocks.”
If any changes to your accounts could incur penalties, Hecht says it’s best to wait until the new year to make those changes.
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