Top 5 Things You Should Do to Get Financially Fit for the New Year

Posted: 1/30/2018

Top 5 Things You Should Do to Get Financially Fit for the New Year

Many people start the new year by hitting the gym. But personal finance experts agree, the New Year is also a great time to think about tightening up your finances, in addition to your abs.

If you ended 2017 feeling stressed about money, the new year offers an opportunity to assess your financial fitness and make a fresh start on your goals, experts say.

Here are financial planners' top tips for getting your finances in shape for 2018:

Make a Plan

Pay off debt, save for retirement, buy a home — these are all good goals, but are they the right goals for you?

Start by asking what financial fitness means for you. "There's needs, and wants, and wishes," says Christian Look, Vice President and Financial Advisor with Bankoh Investment Services, Inc. If you feel intimidated by your finances or feel you need a more experienced set of eyes to help you look at the big picture, you can hire a financial advisor, but it's not necessary, he says.

"An expert's going to be less emotional about it, more objective," Look says. "But it's not hard, it's something you can do yourself just by looking at what you're earning and what you're spending."

Build an Emergency Fund

Nearly a quarter of all adults have zero savings. If you're living paycheck to paycheck, especially with Hawaii's high cost of living, it may seem like there's nothing left to save. But when you do have a little extra, find the discipline to put that money away. The reality is, it's just a matter of time until your car needs new tires or your bathroom floods.

Already have a little set aside? You're off to a good start. Aim to build up your emergency fund to cover nine months of bare-minimum living expenses. That's what Look recommends having in reserve for a more serious financial emergency. "What if you get laid off and you don't have income for a couple of months? You have to have financial reserves," he says.

Start Tackling Debt

Carrying debt isn't just a drag on your finances, it can be a drag on your life, upping your stress level, and even affecting your relationships with loved ones. "Debt is the thing that can derail plans," Look warns.

It can also undermine your efforts to save. Particularly if you're carrying something like credit card debt, you're probably paying more in interest than you would earn by saving the money and investing it in stocks and bonds. According to Look, you should pay off your high-balance debt first.

If you own a home, consider looking at consolidating your higher-interest debts under a home equity line of credit. "The rates are lower and the interest rates are tax deductible," Look says.

Review Beneficiaries

One of the best things you can do to protect your wealth is also the easiest: check insurance policies and investment accounts to make sure beneficiaries are up to date. Many people ignore their beneficiary information, assuming that if their will is current, it supersedes any outdated documents. Not so. In fact, even if the person listed as your beneficiary is deceased, the money could end up being distributed by his or her estate. And of course, divorce can make things even messier. So update those beneficiaries. An hour of paperwork today could save your loved ones thousands of dollars, and months of heartache.

Rebalance Investments

At one time, you may have invested your retirement account in 70 percent stocks and 30 percent bonds, but if you haven't touched it in a few years, that ratio has probably changed. Especially after a hot year like 2017, those stocks may have grown to 90 percent of your portfolio. It's great to see growth, but if there's a market crash or correction, it'll hurt, experts say.

Many people take a "set it and forget it" approach, because they're intimidated by the idea of managing their investments, they feel it's too hard or complicated, or they keep kicking it down the road because they think it will take too much time, but that's a mistake. "Reviewing your investments is very important," Look says.

At the same time, you don't want to micromanage your investments or rebalance them too often, so the new year is a great time to reassess. If the thought of rebalancing your investments feels daunting, talk to your banker or financial advisor for help.