5 Simple Financial Planning Tips For The New Year

Many people take advantage of the new year as a fresh start by doing their best to introduce healthy habits into their lives. New Year’s may seem like an arbitrary time to make such changes, but it’s nonetheless a good time to do so. Inflation has burnt a deep hole in many Americans’ pockets this year, so it’s a good time to begin replanning your finances. There are many ways you can help stem the bleeding and even build your savings up again. Here are five tips to help you start the new year off on the right financial foot.

1. Be Intentional

January is typically a time when people make resolutions to finally change something about their life. February is also typically the time when people abandon those same resolutions. This happens in part because people set lofty goals like “lose weight” or “finally travel” without setting concrete steps to achieve those goals. Ideas like this feel nice at the time but will remain soft sentiments without the proper support.

That’s why it’s important to take time before the New Year to plan your financial strategy. Set aside a few hours to think about your financial goals without distractions. No phone, no family, no friends — just you, a piece of paper, and a pen. Write down at least three major financial goals for the new year and briefly brainstorm a few methods of achieving those goals. These methods will be the building blocks for your financial strategy.

2. Break Down Debt

Debt is a reality that most Americans live with, and simply making more money won’t magically change that. Willis Towers Watson conducted a survey in 2022 that found that even 36% of six-figure earners still live paycheck to paycheck. And that figure has doubled since 2019. But just because so many people live with debt doesn’t mean you have to too.

If you’re someone living under the weight of debt, you know how much ambient stress it piles onto your life. Imagine how much less pressure you’d feel if you didn’t have to live with debt. What would you do with the extra money? What if this was the year you finally released yourself of that burden or at least took significant steps toward easing it? If you feel motivated reading this, use that motivation to take your first step into the new year.

3. Budget Your Life

You’ve probably read before about how budgeting is one of the best ways you can help your finances. And the fact is — it’s true. You’ll put yourself in a strong position by going into the new year with a clear idea of your expenses compared to your income. There are as many unique ways to budget as there are people in the world. But, if you don’t know where to start, try to stick to the 70/20/10 rule as much as possible.

This rule asks you to contain your regular expenses, including discretionary spending, to 70% of your income. Allocate 20% more to savings and the remaining 10% to paying off debt. Now, depending on your situation, the wedge allocated to debt might be bigger, so you can work to pay off debt sooner. Adjust these percentages as necessary to fit your life.

4. Break It Into Buckets

The 70/20/10 rule is a great paradigm to start your New Year’s financial planning. But to really get the most out of your financial strategy, you’ll want to break your spending into even smaller groups. These small groups of expenditures are often called “buckets,” and they’re a great mental tool. Imagine an actual bucket that, when filled to the brim with dollars, is equal to the amount you pay for, say, rent. Then apply this idea to all your regular expenses and savings goals.

You might have rent, groceries, and cell phone buckets under regular expenses, with concerts, Christmas gifts, and travel buckets for savings goals. Following the 70/20/10 rule, the first 70% of your monthly income will go toward filling your “fixed” buckets. The next 20% will go toward your savings goals, and so on. Buckets aren’t just a metaphor — many sites and financial planning software actually have buckets as a built-in tool you can use. They’re a great way to make interacting with your money more visual and manageable.

5. Optimize Your Portfolio

From inflation to global instability, 2022 was a bear market, with stocks dropping left and right. If you already have investments, make sure they’re up to snuff. If you haven’t checked your investment portfolio in a while, you might find that it looks quite different than it did even a few weeks ago. Take some time at the end of this year to reallocate and optimize your portfolio to reflect the market.

As a baseline, make sure your portfolio is balanced to help you achieve your particular investment goals. You might have a longer-term plan in mind or be trying to make some quick returns. Take some time to re-assess your risk tolerance — how much stock volatility you’re willing to take on with your investment. How you distribute your assets will vary depending on how much risk you’re willing to tolerate. Then you can rebalance your portfolio based on critical thinking rather than your emotional response.

The Right Financial Foot

Whether or not you’ve got two left feet, start this year off on the right financial footing. The last few years have brought economic turbulence that’s left many Americans feeling overwhelmed. But instead of focusing on that overwhelming feeling, focus on what you can control — your spending. Take small, measured, intentional steps to achieve thoughtful financial goals. It might be a slow start at first, but your future self will thank you.