4 Steps to Improve Your Finances in 2018

The New Year brings with it new resolutions for self-improvement. Many people want to improve their personal finances, but don’t know how to achieve their goals.

The key to making a meaningful financial improvement is to focus on the process and the things you can control. Here are some steps anyone can easily take to improve their financial well-being in 2018.

Step 1: Increase Your Savings Rate

Increasing your savings rate can boost your net worth, improve your financial health, and give you more money to funnel toward your goals.

There are several ways to accomplish this goal. If you aren’t contributing the maximum amount to your company-sponsored retirement plan, such as a 401(k), then simply increase your percentage contribution to the plan. If you are already maxing out your company-sponsored retirement plan, perhaps you could contribute to an IRA or Roth IRA.

If you are already filling your retirement buckets to the max, then start making regular contributions to a taxable savings account. Maybe it is an investment account or maybe you could pad your cash in your emergency fund.

Because many people don’t know how much they save on an annual basis, a related goal may be to determine the actual dollar amount you are saving and determine if that number could be higher this year.

Step 2: Track and Review Your Spending

The easiest way to track your ongoing spending is to link all of your credit card and bank accounts through BrightPlan. After tracking your spending in the platform for a few months you will have enough data to determine your typical spending rate.

Understanding your typical spending rate makes it easier to plan for your financial goals. For example, planning for retirement can’t accurately be done unless you have a handle on what your current or desired lifestyle costs.

Not only do you want to track your spending, but you will also want to review your transactions to eliminate spending that doesn’t align with your values.

As I described “Spending Too Much? Here’s What to Do”, there is a great exercise for ensuring your spending aligns with your values and priorities.

Your credit card statement will likely have an annual report, so start by printing that off, then grab a pen and mark each expense as best value good value, or bad value. If you share expenses with a significant other print off two copie and do this exercise separately, then compare notes.

Take a look at what you both marked as “bad.” These are the expenses that you can easily eliminate going forward. You may also consider cancelling the recurring expenses that are not considered to be a “best value.”

Step 3: Automate Your Finances

The greatest financial decision I’ve ever made was to put my finances on autopilot. Finances have a way of getting increasingly complicated in all stages of life. Putting your savings, bills, and investments on autopilot can greatly simplify things.

Start with your checking and savings accounts. Direct a portion of each paycheck out of your checking account and (depending on your goals) into a savings account, towards an extra payment on high-interest consumer debt or into an investment account.

Next, focus on your bills. I challenge you to find a bill that can’t be paid automatically – credit cards, mortgage, utilities, memberships, tuition, etc – there is no reason to worry if you have paid a bill or not.

Once you have your savings and bills on autopilot, the last (and arguably most important) step is to set up automatic investing. When you make automatic deposits into your investment accounts you commit to your goals in a new way, and also ensure that you won’t get caught in the trap of trying to time the market.

Step 4: Set Clear Financial Goals And Take Steps To Achieve Them

Writing down a goal with an estimated date and expected cost dramatically increases your likelihood for success. It also allows for you to understand the things that are most important to you.

I often use a reverse budgeting process to help clients prioritize their goals and see exactly how much they need to save each month to reach them.

To see if a financial goal is clear, run it through the following questions:

• Why is this goal important to me?
• When do I plan to achieve it?
• How much money will I need?
• What account will I use to save or invest for this goal?
• How much have I already saved?
• How much can I set aside each month?
• How should I invest my savings for the goal?

Answering each of these questions will give you a clear plan of action to tackle each of your goals. Some financial goals, such as retirement, require extensive modeling due to the many variables in play and is best done with a sophisticated tool like BrightPlan or the assistance of someone experienced in retirement planning.

Other goals require less computing power such as setting up an emergency fund with 6-12 months living expenses, buying a car, or making a down payment on a home. Whatever your money goals are, clarifying them can help you gain a stronger financial footing in 2018.