New year, new financial goals: As you kick off the new year with your list of resolutions, be sure to include financial priorities, such as boosting your credit score and creating a strategy to pay down credit card debt. Setting clear goals is an excellent first step toward improving your finances—now it’s time to take action.

1. Create a Budget

Committing to a savings and investment plan during your working years is one of the most effective ways to grow your net worth and achieve key life goals. But first, it’s essential to understand your financial starting point. This is where a budget and a net worth statement come into play. Here’s how to approach them:

• Budget and Save: Start with a high-level budget that includes three key elements: your after-tax income, your spending, and your savings. If you’re unsure where your money is going, spend 30 days tracking your expenses using a spreadsheet or an online budgeting tool. Identify how much you need for fixed monthly costs, such as rent or mortgage payments and other essential living expenses, and set aside funds for your financial goals. For retirement, aim to save 10%-15% of your pre-tax income, including any employer match, starting in your 20s. If you begin later, the percentage you’ll need to save increases—add an extra 10% for each decade you delay. Once you’ve determined your savings target, look for ways to automate the process, such as setting up monthly direct deposits into your savings or investment accounts.
• Calculate Your Personal Net Worth Yearly: Keeping it simple is key. Start by listing your assets (what you own) and liabilities (what you owe). Subtract your liabilities from your assets to calculate your net worth. Don’t worry if your net worth dips during market downturns; the focus should be on maintaining an overall upward trend throughout your earning years. If you’re retired, prioritize developing an income and distribution strategy to ensure your savings last while supporting your financial goals.
• Project The Cost of High Ticket Items: If you have a significant upcoming expense, such as college tuition or a roof repair, set the money aside now or increase your savings and consider that money already spent. For expenses within the next few years, keep the funds in relatively liquid and secure options, such as short-term certificates of deposit (CDs), a savings account, or money market funds in a brokerage account. If you opt for a CD, ensure its term aligns with when you’ll need the cash. For goals several years away, consider investing strategically based on your time horizon.
• Prepare For Emergencies: If you’re not yet retired, prioritize building an emergency fund with three to six months’ worth of essential living expenses in a savings account. This fund provides a financial cushion for unexpected expenses, allowing you to avoid selling more volatile investments during times of need.

2. Manage Your Debt

Debt isn’t inherently good or bad—it’s a tool, and its value depends on how you use it. For many, some level of debt is a practical necessity, particularly for financing major long-term assets like a home that can be paid off over time. However, debt becomes a problem when it turns into a burden rather than a resource. Here’s how to manage it effectively and stay in control.

• Keep Total Debt Manageable: Don’t mistake how much you can borrow for how much you should borrow. Aim to keep your monthly homeownership costs (including principal, interest, taxes, and insurance) below 28% of your pre-tax income. Additionally, ensure your total monthly debt payments—covering credit cards, auto loans, and mortgage payments—stay below 36% of your pre-tax income.
• Eliminate High Cost Debt: Focus on paying off credit card debt and avoid borrowing to purchase depreciating assets, like cars. Carrying a balance on consumer debt can quickly become costly. To manage your debt, consider consolidating it into a low-rate home equity loan or line of credit. Create a realistic budget and establish a repayment schedule to help you stay on track.

3. Optimize Your Portfolio

Everyone aims for better investment results, but research shows that consistently timing the market perfectly is nearly impossible. Instead, focus on creating a plan that helps you remain disciplined through all market conditions. Stick to your plan and make adjustments as necessary. Here are some strategies to help you stay focused on achieving your goals.

• Focus On Your Investment Mix: Once you’ve committed to a savings plan, your next crucial step is deciding how to invest. Establish a targeted asset allocation—a balanced mix of stocks, bonds, and cash in your portfolio—that aligns with your long-term goals, risk tolerance, and time horizon. Choose an allocation you can stick with, even during down markets. Remember, the longer your time horizon, the more opportunity you have to ride out market fluctuations and potentially benefit from them.
• Consider Taxes: Optimize your portfolio by placing relatively tax-efficient investments, such as ETFs and municipal bonds, in taxable accounts. Meanwhile, allocate relatively tax-inefficient investments, like mutual funds and real estate investment trusts (REITs), to tax-advantaged accounts, such as traditional or Roth IRAs. If you trade frequently, consider doing so within tax-advantaged accounts to help minimize your tax liability.
• Choose Appropriate Benchmarks: Your benchmark for measuring investment performance should align with your portfolio and personal goals—not with the previous year’s market winners or a portfolio fully invested in stocks. Your portfolio should be designed to match your objectives, balancing potential returns with an acceptable level of risk. Focus on progress toward your goals rather than chasing top-performing stocks, which are impossible to consistently predict for any investor.

4. Prepare For The Unexpected

Risk is an unavoidable part of life, especially in finance and investments. Unexpected events like illness, job loss, disability, death, natural disasters, or lawsuits can significantly impact your financial stability. If you lack sufficient assets to self-insure against major risks, make it a priority to ensure you have the right insurance coverage. Insurance provides a safety net for rare but costly events that would be challenging to manage on your own. Use these guidelines to prepare for life’s uncertainties effectively.

• Protect Against Large Medical Bills With Health Insurance: Choose a health insurance plan that aligns with your needs, including medical and drug coverage, deductibles, co-payments, and access to your preferred medical providers. If you’re in good health and rarely visit the doctor, a high-deductible plan might be a cost-effective option, providing protection against serious illnesses or unexpected health-care events.
• Purchase Life Insurance: Start by taking advantage of a group term life insurance policy if your employer offers one. These policies typically don’t require a medical exam and can provide a cost-effective way to ensure income replacement for your dependents. If you have minor children or significant liabilities that would persist after your death and can’t be self-insured, you may need additional life insurance. Unless you have a permanent life insurance need or unique circumstances, consider beginning with a low-cost term life policy before exploring whole life insurance options.
• Long Term Disability Insurance: The likelihood of becoming disabled is higher than the likelihood of dying young. According to the Social Security Administration, a 20-year-old American has a 25% chance of becoming disabled before reaching retirement age, compared to a 13% chance of dying before then. If your workplace doesn’t offer sufficient short- and long-term disability coverage, consider purchasing an individual disability insurance policy to ensure adequate protection.

Store essential inventories and important documents on a portable hard drive for easy access. Additionally, keep physical copies of critical items—such as birth certificates, passports, wills, trust documents, home improvement records, and insurance policies—in a small, secure document safe. Opt for a fireproof, waterproof, and lockable safe that you can quickly grab during an emergency evacuation. Inform trusted loved ones about the location of this safe so they can access it if needed.

5. Protect Your Estate

Estate planning isn’t just for the wealthy—it’s something everyone should consider. Without proper beneficiary designations, a will, and other essential documents, decisions about your assets or minor children could be left to attorneys or tax agencies. This can lead to delays and significant costs in the form of taxes and legal fees, reducing the assets your heirs receive when they need them most. Here’s how you can take steps to protect your estate and provide for your loved ones.

• Review Your Beneficiaries: Your first line of defense in estate planning is the beneficiary designation, which ensures your assets transfer quickly to the intended recipients. Regularly update beneficiary information on life insurance policies and retirement accounts to ensure they align with your current wishes, will, and other legal documents. Keeping this information accurate helps avoid conflicts and ensures a seamless transition of assets.
• Update or Prepare Your Will: A will does more than transfer assets—it ensures your dependents are cared for and helps avoid the expenses and delays of dying without one. It can also outline how debts, like credit cards or mortgages, should be repaid. Remember, beneficiary designations and asset titling take precedence over the instructions in a will, so ensure all documents are consistent and reflect your wishes. When drafting a will, it’s wise to work with an experienced lawyer or estate planning attorney to ensure everything is done correctly.
• Durable Power of Attorneys: In your estate planning documents, designate trusted and capable individuals to make decisions on your behalf should you become incapacitated. This ensures your wishes are respected and important matters are handled responsibly.
• Consider A Revocable Living Trust: This is particularly crucial if your estate is large or complex, requiring detailed instructions on how your assets should be utilized, or if you have dependent children and need to specify how assets will support them, who will manage the assets, and other related matters. While a living trust may not be necessary for smaller estates where beneficiaries, titling, and a will are sufficient, consult a qualified financial planner or attorney to determine the best approach for your situation.

Love, Bee xoxo