5 ways to get in better financial shape

Life Lessons

5 ways to get in better financial shape

After the joy and chaos of the holiday season passes, many people are left with a lingering doubt about where they stand financially. Some dread January and the credit card statements that comes with it. Thankfully, with a New Year comes new opportunity to better manage your money. Making better financial decisions is a common theme with many who set resolutions at the beginning of the year.

However, it can be overwhelming to know where to start if you’ve never taken money seriously, or if you are just starting out. You may also feel like many financial goals are too far out of reach to have success. Thankfully, that’s not the case if you approach it wisely. Here are five simple ways you can get in better financial shape this year that you can work on regardless of your confidence level.

Start an Emergency Fund

Life is unpredictable. You never know when your car will need repairs or when your air conditioner will go on the fritz. Having an emergency fund is the best way to prepare yourself financially for those times.

“The best way to get in good financial shape is the easiest one. Start an emergency fund. It’s not a matter of “if,” but “when.” There will always be some urgency to find money for something unexpected,” says Abby Eisenkraft, EA, ATA®, ATP®, CRPC®, of Real Life Tax Advice.

Most experts recommend having 3-6 months of living expenses saved for emergencies. If you don’t have an Emergency Fund yet, don’t let that amount hold you back.

Even if you start saving in small amounts, it will go a long way to help you weather an emergency without going into debt to pay for it. Make a goal to save $500, then $1,000 to help build confidence that you can save money.

Kill Debt

If you’re in debt, especially higher interest consumer debt, paying it down is a great way to get in better financial shape this year. Debt is an emergency and, ultimately, will hold you back from experiencing the kind of life you want.

The first step to paying down debt is to know how much debt you have. Write down the amount you owe each creditor and the amount of interest and make a plan to start paying it down.

You can take it a step further by tracking your spending to find areas to cut back on to free up more money to throw at the debt.

Embrace Automation

Life gets busy, which makes it easy to forget our financial goals. Managing our money often is at the top of the list of things we overlook when life gets busy as we simply don’t take the time to do what we know is best.

The best way to protect against this and get in better financial shape is through automation. “Making retirement and savings contributions the automatic, default option, so that we must actively opt out of saving is a wise approach,” says Robert R. Johnson, Ph.D., CFA®, CAIA®, President and CEO of The American College of Financial Services.

As Johnson points out, automation can help you in everything from saving for retirement to simply saving money. There are even apps you can use that will help you save money on everyday purchases. “People should try and automate as many financial decisions as they can,” says Johnson pointing out just how helpful automation can be as it guarantees the given task is done without you even having to think about it.

Grow Your Retirement Portfolio

If you have the other bases covered, actively saving for retirement is a great way to get in better financial shape this year. Many have the misconception you need a lot of money to start investing.

You don’t. There are a number of online brokerages that allow you to start investing with little to nothing. Perhaps the best and easiest place to start investing however is in your 401(k) plan at work. “…you should join your company’s retirement plan ASAP. For every $1 you contribute to a 401(k) or 403(b) plan, you are taking money off the taxable table, thereby reducing your federal and state taxes, and saving money so you can eat later in life,” says Eisenkraft, pointing out the dual benefit of saving money in your employer-sponsored retirement plan.

Additionally, if you’re new to investing, many plans offer free tools to help you start.

Buy Insurance Coverage

The final way to get in better financial shape this year is to make sure you have appropriate insurance coverage. In many cases, this starts with having an adequate amount of life insurance.

Life insurance is often the best way to provide for your family in the event of an untimely passing. Many overestimate the true cost of life insurance when it’s often reasonable in price. In many cases, you can even get Group Term coverage through your employer for far cheaper than you’d expect.

If you already have adequate life insurance another type of coverage to consider is disability insurance, which provides income in the event that you’re injured and unable to work. With many disabilities not being work-related, you won’t be covered by workers’ compensation. Disability insurance can help in such a situation to ensure you’re able to meet your financial needs in the case of injury.

The New Year is full of opportunity. By focusing on even one of these ways you’ll be surprised at how your financial picture will change for the better.

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