The year has just started and like most people, you probably have thought of starting your New Year's financial resolutions. Maybe you want to save more this time around. Maybe you want to spend less and pay off your debt. Maybe you want to be financially free. Whatever it is you want to achieve this year, assessing your financial health at the moment is a good place to start. Here are key questions to ask if you want to start the year right:
Did you save money last year?
If you want financial freedom or achieve anything financially worthwhile this 2015, learning how to save money is the first habit you need to develop. How high or how low your income doesn't matter. What matters is to start saving as soon as you can if you haven't yet. If you've saved a decent amount last year, it's time to step up the game this year.
To make it easier to save money, one of the simplest and most effective things you can do is set-up an automatic debit deduction. This way, you set aside money before you get a chance to spend it. You are also recommended to gradually increase your savings over the next 12 months if you want to increase your net worth faster. But again, the trick to start with something you can comfortably handle. At the end of the day, it's not the amount but the habit of saving you are honing.
Did you pay all your obligations last year?
Other than saving, one other financial resolution that has the potential to change your circumstances significantly is making on time payments. Before embarking on a bold financial goal this year, ask yourself this: Did you miss any payments on any obligations last year? A yes to that question means you probably hurt your credit score and you don't want a poor credit rating. Bad credit scores usually means higher interest rates and on persona loans. It also means high likelihood of rejections on any type of credit applications.
Start your year right by striving to make on time payments for all your obligations this year. Yes, they will be circumstances when you miss one or two payments but you can avoid that altogether by setting up automatic payment deductions.
How much balance do you have on your credit card after the last payment?
Making on time payments for all your obligations is one thing but carrying a balance on your credit cards is another. Check back how much balance you carried last year after the last payment. Ideally, your New Year's financial resolution should zero in on eliminating that balance altogether. That's not always possible however. But you can still work on this by keeping your balance at a minimum if possible. Otherwise, you'll end up paying interest when you could've added the money to your savings accounts instead.
One way to take care of your credit balance effectively is to make a budget and strive as hard to stick with it for the next 12 months. You may even want to leave your credit cards at home from time to time just so there are no temptations around.
How much of your assets are liquid?
According to financial experts, it is not financially wise to tie up all your net worth to assets you cannot easily liquidate like your home. Life may throw you an emergency or two and you need to prepare for that by making sure that you have at least 10% of your assets' value in liquid. It's not saying that you should expect the worse for this year but it's about keeping a financial offensive arrangement when something comes up.
As a simple rule, aim for an amount that will cover at least 3 months of your expenses. The more months you can cover the better for you financially. You can keep the money safe in an account you cannot easily touch but is still easily accessible for emergencies.
The Bottom Line
If you want your year to go smoothly at least financially, the key is to first learn from last year then develop a financial that will help you save regularly and pay all your obligations on time. Also important is to maintain a low credit balance and make sure that you have enough liquid assets to cover for emergencies. If you can cover all these important financial matters this 2015, chances are high that the next 12 months are going to be good for your finances.