What is it about the New Year that we feel compelled to write down resolutions? The allure of a new year provides us with a blank slate; a brand-new opportunity to right all the wrongs we’ve done in the past year or to not do them again.
And we’ve all been there: making that list of 10 or 20 resolutions of things that we vow to change during this new year, our new opportunity at redemption. What kind of resolutions have you made — and kept — in previous years? What are your resolutions for 2015?
On my list are the usual suspects: hit the gym more (make time), read more books (I don’t know how I’m going to make time for that) and watch the entire roster of Oscar nominated films (wait, do I really want to do that?). But most important of all resolutions is to get my finances in order. I have a few heavy-duty goals that I want to meet in the next three years, so that means that having my financial house in order is a must.
As a financial advisor, do you keep a list of financial resolutions? Do you give a list of these resolutions to your clients? Now is the perfect time to get this conversation started.
These tips from WalletHub of 15 goals for 2015 should help you get the conversation started with your clients or prospects. If you have any additional tips, you can add them in the comments section below.
1. Getting reacquainted with their finances
It might sound obvious, but your clients have to start somewhere, right? Make sure that they check the status of their financial accounts and evaluate their monthly cash flow. They should be able to gauge where they need to improve or upgrade an account if there are added benefits and you can make recommendations.
Remember: your clients’ financial needs will change from year to year and there are always changes in the market that they might want to take advantage of.
2. Making a budget
Did you know that only 39 percent of adults have a budget? According to the National Foundation of Credit Counseling, credit card debt will increase from $60 billion to $70 billion in 2015. “Those statistics make the need to create and maintain a budget seem a bit more pressing, though, especially since we’ll be putting ourselves at risk of another recession if we keep overleveraging at this pace,” says the report from WalletHub.
Some simple tips to make a budget:
- take stock of all your bills from the past few months
- make a list of your recurring expenses in order of importance; housing, food and health care should be priorities
- compare the cost of these expenses against your monthly take-home
- eliminate any expenses that would outpace your spending power
- after that, compare your monthly spending to your planned budget to make sure you are abiding by it
3. Use the Island Approach
This approach is based on the theory of compartmentalization, which encourages the isolation of different financial needs, with the bottom line being to decrease debt.
4. Automate as much as possible
WalletHub makes a strong case for this one: “One of the most easily avoidable mistakes that people make in regards to their finances is missing due dates,” the report states. And being late on a payment can damage your client’s credit score. But make sure that they don’t fall into the “out of sight, out of mind” trap; keeping track of bills is very important to avoid fraud and overcharges.
5. Build an emergency fund
Another startling statistic: 56 percent of Americans don’t have a “rainy day” fund, according to the Financial Industry Regulatory Authority’s National Financial Capability Study. “Like someone without insurance, folks who lack an emergency fund are merely tempting fate and putting themselves at risk of financial catastrophe in the event of prolonged job loss or significant emergency expenses,” WalletHub cautions.
They recommend building a fund of about 12 to 18 months of take-home income, while making the exception that that won’t happen quickly. The key is to start now, and start building a six-month safety net before beginning to pay down debts, to ensure that your clients don’t end up where they started.
6. Getting out of debt
Taking steps like having a 0 percent balance transfer credit card, a credit card calculator, taking aim at the highest-interest balances first, while attributing only minimum payments to the rest, are other ways to strategically pay off what is owed at the lowest cost in both money and time, according to WalletHub.
7. Improving the credit score
WalletHub recommends that the best way to improve a credit score is to maintain an open credit card account that is in good standing. “The card will then report positive information to the major credit bureaus each month, either building out your thin credit profile or helping to devalue mistakes from the past,” says their report.