As we start the new year, financial experts say this is a great time to evaluate and set some financial goals for yourself and your family.
But where do you start and what should you focus on?
Watch the video above or read the interview below:
“So what do we do? What kind of goals should we be setting with our finances?”
“Well, thanks, Nancy, for having me. You’ve got to have a documented financial plan. You got to know your numbers, right. So what is that? Income minus expenses equals your savings. Let me say it again: income minus expenses equals your savings. So know what income is coming in. How can you increase that, manage those expenses, and have a target savings ratio?”
“What’s the biggest mistake that people make?”
“It’s so hard to save, right? So how can you do that? I love to give people the 1% challenge. So if you’re not saving, save 1%, and if you are saving, increase it by 1%. I like to encourage my clients to save 15% of what they’re earning. So start with your employer plan. If you have a 401k or 403b, fully take advantage of that and understand how much do you have to put in to get the match. Or are you eligible for an IRA, which by the way, you have until tax filing deadline this year to put money in for last year. And then set specific milestone goals like retirement or buying a house, right, like those things, you need to know how much they cost, how much you’re going to have to save and set a specific timeline.”
“Well, and with saving, I mean, the interest rates are going up. So there’s actually a little bit more of an incentive to save right now, I would think.”
“Yes, absolutely. I mean, you know, it’s, it’s two sides of the coin. Right? So interest rates, hot topic this year, Fed raised rates a lot last year, and it’s definitely the topic du jour of the year, what are they going to do. So higher interest rates are present opportunities for investors, because interest rates are higher, but it’s also a negative if you’re a borrower, because it costs more to have that type of debt.”
“Alright, so what you’re saying is take a step back and just look at everything, what’s coming in, what’s going out? And what can we do differently? Correct?”
“Yeah. I mean, it’s like juggling, right. But you know, we want to live within our means. And you know, most people know how much they earn. But it’s so hard to not spend. And another thing this year is inflation, right? Things cost more, right. So we’re gonna have to make trade-offs based on our needs, our wants and our wishes. Like we have to have priorities because the same basket of goods is costing more than it did before.”
“Needs, wants, wishes. That sounds like something we should be considering.”
“Yeah, absolutely. I mean, you know, it’s not cheap anymore. Look at how much food is costing or, you know, gas has gone down a little bit, but it’s still costing us much more money. And if your salary hasn’t gone up the same amount, you have less money to save, or you have to potentially spend less to save the same amount.”
“So inflation is something we’re thinking about, is there anything else particular to this year?”
“I think another thing is a recession, right? Are we in recession? Are we going into recession? And from a financial planning perspective, what can we do about it? Or what’s the risk? What if we lose our job? Or what if our loved one loses their job? So you know, look at things like increasing your emergency fund. Have a larger amount of money in case you don’t have that earned income for a handful of months. Go back to your debt. How long can you pay that debt that you currently have? Or maybe if you do lose your job, do you want to look for the same kind of job? Or maybe this is an opportunity to get reskilled, reeducated or do that type of gig work. Right, something different that you weren’t doing before.”
“And of course, get financial help from a financial advisor.”