by Tyler Curtis
With the each New Year we reflect upon the challenges we faced during the previous year while making resolutions for the next. Many of these resolutions I hear from family and friends are often either financial or health related goals as these seem to be the two areas in our lives that always seem as though they could be improved. I think the problem with most of the resolutions I hear made this time of year is that they are far too ambitions and often never end up being fulfilled. With this in mind I’ve compiled a list of simple financial do’s and don’ts for the coming year that can help you get your finances in order.
Don’t attempt to predict the future. There are piles of evidence that show you can’t consistently predict where the market will be a year from now. This has been a perilous effort for many investors since the inception of the stock market. Instead focus on a long term strategy that does not attempt to time the ups and downs of this volatile market.
Do keep an emergency fund available. We recommend keeping six months living expenses in an emergency fund. With this extra cash set aside you can avoid having to sell off investments in order to pay expenses in an emergency. Even if you aren’t concerned with losing your job, a rainy day fund can provide some peace of mind.
Don’t make sudden moves. Refrain from making extreme changes to your investment portfolio just because of volatility in the markets. Investment decisions based on fear and emotion are likely to lose you money in the long run. Even though it can be difficult at times, try to ignore the daily stock market news and follow a long-term investing plan.
Do track your spending. One of the most eye opening things while creating a financial plan is seeing exactly where all of your money goes. There are free services available online, such as mint.com, that can help track exactly what you are spending money on each month.
Do live below your means. You can only save money and invest when you have something left over at the end of the month. After tracking your expenses create a budget that can help control your spending and boost the amount of money you are able to save each month.
Don’t give up on stocks. It can be difficult to watch your portfolio value fluctuate during volatile markets like we have seen over the past couple of years, but investors hoping to build a nest egg for the long term have few better options than the stock market.
Do pay off expensive debts. Focus on paying down any high interest credit-card debt that you have outstanding. The national average APR on credit-card debt is 15.14 percent. Paying down a credit-card loan at this rate provides you with an immediate 15.14 percent return.
Don’t invest in anything you don’t fully understand. The financial crisis helped demonstrate what can happen when novice investors invest in complex instruments they don’t comprehend. Many investors lost big on asset-backed-securities and other investments that in most cases they never fully understood in the first place.
Do continue learning about investing and personal finance. We have put together a great assortment of free financial tools and literature to help you with your personal financial success, they can be found here.