Focus on Financial Resolutions for the New Year
Many view the start of a new year as an opportunity to change old habits and adopt resolutions. This is also a great time to check on your investments, revisit your budget and improve your overall financial wellness. Read on for five tips to boost your financial savvy for the year ahead.
1. Get Organized
First, make sure your financial files—whether digital or hard copy—are in order. If you don’t log in to your accounts regularly, confirm you’re still able to sign in and access your statements. If you receive paper copies, shred what you no longer need after you file the most recent documents.
Check your personal information, and update it if necessary—including your full name, address, mobile number and email. This can help you prevent fraud (or detect it early), receive timely updates or announcements, and prevent the possible forfeiture of inactive accounts, known as escheatment. Ensure that your emergency contact, beneficiary and any trusted contact information is up to date. If you haven’t already added a trusted contact to your account, now is a great time to do so.
Also, take this opportunity to check your credit score. A measure of how likely you are to pay back a loan on time, this number can have a big impact on your financial life. Your credit score can affect how much interest you pay on a loan, the limit on a new credit card, your required security deposit for a new apartment and more.
2. Draft Your Budget
With your documents in order, start making a budget. If you already have one, take time to reevaluate it. Do you have new or increased expenses? Are you expecting a raise?
Make sure your budget is realistic, as a plan doesn’t do any good if you can’t stick to it. Don’t forget to allot for savings in your budget, including a rainy day fund in case of an emergency. If money is tight, start small—every little bit helps.
3. Update Your Goals—and Your Portfolio
After developing your budget, think about your savings goals. Is there room to boost your retirement saving? What other financial milestones—building a kid’s college fund, securing a down payment for a house—are important to you right now? Setting short-term goals as well can help prevent your long-term goals from feeling overwhelming.
Once you’ve clarified your goals, make sure your portfolio is optimized to accomplish them. As you check the performance of your investments, you might find that your investment mix shifted throughout the year. If so, now could be a good time to rebalance.
When you rebalance, you restore the asset allocation in your portfolio to your original target or adjust it to fit any revision you might have made to your investment objectives. The goal is to maintain your desired risk level and keep your portfolio diversified.
Rebalancing isn't always easy. You might not feel great about selling securities that are doing well or investing more in an asset class that’s lagging. But just because an investment performed well in the past doesn't mean it will do well going forward.
4. Examine Your Fees
Even products that seem straightforward can be misunderstood if you aren’t careful. One factor that’s often overlooked is fees. Thanks largely to the emergence of online trading platforms, fees are often less than they used to be, and many brokerages offer commission-free trading. But even commission-free trading usually involves costs.
Since fees are often deducted from earnings, they can be easy for investors to miss. And that can have big consequences. Even a 1 percent difference in fees can add up to a large sum of money over 20 years. It's worth your time to find out what you’re currently paying in fees and if cheaper options are available.
If you invest in funds, check out FINRA's Fund Analyzer tool. It can help you understand the impact of fees and potential discounts on mutual funds and exchange-traded products (like ETFs) by running a wide variety of investment scenarios to calculate how a fund’s fees, expenses and discounts affect its value over time. You can find most fee information for current investments on your brokerage account statements or trade confirmations. Don’t hesitate to ask your firm or investment professional to provide details about any fees or commissions associated with your investments.
5. Protect Your Money
There’s a lot to consider when investing, and your finances are too important to leave to chance. Consulting a reputable source—such as a registered investment professional who understands your investment goals—can help you make the most of your money.
The rise of “finfluencers” and social media investing channels offers easy access to financial advice, but an unqualified individual offering unsolicited recommendations might not have your best interest in mind—or worse, might not be offering a legitimate investment opportunity. Be very cautious of “investment groups” promoted on social media channels. These are often fraudulent, involving scammers posing as registered investment professionals. These scammers will try to build trust before moving targets into encrypted chat groups to pitch investments that ultimately lead to investor losses.
Know the red flags of financial fraud and check out both the seller and the investment before committing. Even friends and family might not be the best sources of guidance; just because an investment is right for them doesn’t mean it’s a good choice for you.
If you decide to work with an investment professional, select the person carefully. Look for someone you feel comfortable with, ask questions and always check their credentials on BrokerCheck.
Learn more about investing.
