Many people make New Year resolutions near the end or the beginning of a year with the goal of improving oneself. I would say that now is the time to decide on the changes that you want to make, because it only takes 21 days to form a new habit. In fact, you can begin today developing smart money habits to roll into 2022 without skipping a beat. A common goal is usually “saving more money” but not how or where to start. Let us begin with these five new money habits to adopt now for the new year!
1. Spend less than you earn
Spending less than you earn allows you to save for emergencies, invest for retirement, avoid debt, pursue your dreams, and accomplish important financial goals. Oftentimes, people live paycheck to paycheck and have to reach for their credit cards (debt) to cover expenses. This happens when we do not prioritize our spending and we have already spent our next paycheck before it arrives. This vicious cycle prevents having financial security. Therefore, we must adopt the habit of living below our means to be successful with habit #2.
2. Create a budget and stick to it
What is a budget? It is simply a spending plan to identify and account for how you will spend your dollars each month. It begins with the essential items such as food and shelter, and it may include discretionary items such as personal care and travel. Knowing your cash flow and expenses help to determine how to adjust, as necessary. Otherwise, your spending habits may prevent you from receiving the most value from your dollars. In the end, you can still enjoy guilt free spending for your birthday and still be prepared for habit #3.
3. Save for emergencies
If we have not learned anything else from these 20 months in a pandemic, we have learned that saving for an emergency is important. Traditional teachings suggest saving three to six months of living expenses, but I suggest that we increase it to 9 to 12 months. Planning for an emergency should be a no brainer, but according to Bankrate’s July 2021 Emergency Savings Survey, “more than half of Americans (or 51 percent) have less than three months’ worth of expenses covered in an emergency fund. That total includes 1 in 4 Americans (or 25 percent) who indicate having no emergency fund at all — up from 21 percent in 2020.”
Step #2 can help accelerate Step #3. Budget for your emergency account this holiday season by spending less on gifts. Deposit those year-end bonuses and cash gifts received. There is no reason to wait until 2022 to start saving for an emergency. Let this new habit help you to reach $1000.00 in three months or less. Here is a secret: habit #4 can also serve as an emergency fund! How? Read on.
4. Buy life insurance
I know that no one wants to talk about death, but it is inevitable. Everyone should have life insurance. It is not what it used to be. It has evolved over the centuries since the 1700s to provide more than a simple death benefit. It may serve as an emergency fund, provide for long term care, or cover the costs of a critical, chronic, or terminal illness that require extensive medical treatment. Imagine using your death benefit BEFORE death to meet an emergency, to cover long-term care, or to pay medical expenses without depleting your savings or retirement accounts. Yes, you read that right! Step #4 is a powerful tool! Contact me if you want to learn more.
5. Invest for your future
The fifth habit is why you develop habits one through four, to make your money work for you. It is difficult to build wealth unless you put your money to work. Invest in assets that produce a return on investment for growth, but first, you must do your research and educate yourself. Learn the principles of compound interest and the Rule of 72. Work with a financial professional to help you develop habit #5 to improve your net worth and build a more secure future.
If you adopt and develop these five habits now before 2022 rolls around, you will have peace of mind, and build wealth while enjoying fun things along the way. Resolve to make 2022 your BEST year yet! Feel free to contact me at daly.cynthia@canfinancial.biz to get started today.