It’s still early in the new year, which means it’s an opportunity for a fresh start in many areas of life, including your finances. Take a little time now, in the first two months, to thoroughly review your finances from the previous year and create a plan for the year ahead. This will help you gain control of your money and minimize stress related to your finances throughout the year.
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GOBankingRates spoke to two financial planners — Taylor Kovar, CFP, CEO and founder of Kovar Wealth Management, and Jeff Rose, CFP and founder of Good Financial Cents — about the best steps to take with your finances at the start of a new year.
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Create a Budget
The most fundamental step to organizing your finances is to create a budget, if you don’t already have one. A budget allows you to compare your income and expenses and see where your money is going each month. If you do already have a budget, it’s time to take a fresh look at it.
“Start by reviewing your previous year’s budget,” Kovar said. “Regularly updating your budget ensures it reflects any changes in your income, expenses or financial goals. It’s a vital step in maintaining financial control and making informed decisions throughout the year.”
Rose said, “Ditch the fancy apps and go old school with a budget spreadsheet. It’s straightforward, customizable and doesn’t bombard you with notifications. Plus, manually entering expenses makes you more mindful of your spending habits.”
Throughout the year, use your budget to guide your spending decisions and make adjustments as needed.
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Set Financial Goals
Establish clear financial goals for the year ahead. This provides focus and accountability around your money habits and priorities.
“Get real about your financial goals,” Rose said. “Vague aspirations like ‘save more’ or ‘start investing’ won’t cut it. Set specific, challenging yet achievable goals. Whether it’s saving $10,000 or cutting down eating out by 50%, clear targets make you more likely to reach all your goals.”
Taking the time to establish specific, measurable goals provides focus and gives you milestones to strive toward throughout the year. For example, aim to save $1,000 per month to reach $12,000 in emergency savings by year end. Or set a goal to reduce restaurant spending from $400 to $200 monthly.
Make a Debt Repayment Plan
If you are carrying debt, an essential step in organizing your finances is to make a plan for paying it off.
“List all your debts and devise a strategy for repayment, such as the debt snowball or avalanche method, to efficiently tackle them in the new year,” Kovar said. “A structured plan for debt repayment provides a clear path to becoming debt free. It helps in prioritizing debts and can save money on interest over time.”
The debt snowball method prioritizes paying off small debts first to build momentum, while the avalanche method tackles debts with higher interest rates first to reduce total interest costs. Whichever plan you choose, stick to it, and automate payments when possible.
“Attack your debt with a vengeance,” Rose said. “Prioritize high-interest debts like they are your worst enemy. Paying these off aggressively can save you a fortune in interest and bring peace of mind faster.”
Automate Bill Payments
Set up automatic payments for all of your recurring bills like rent, utilities and insurance. This reduces the risk of forgetting to pay on time, prevents late fees and helps manage your cash flow.
“Automate your savings and bill payments to ensure timely payments and consistent savings without the need to manually transfer funds each month,” Kovar said. “Automating savings helps in building your nest egg without the temptation to spend that money elsewhere. Similarly, automated bill payments ensure timely payments, helping avoid late fees and maintaining a good credit score.”
Just be sure the amount gets deducted from your bank account a few days before the actual due date in case of processing delays. Review your bank and credit card statements regularly to ensure the auto-payments are going through as expected.
Create a Filing System
Have a system in place for storing all your financial documents. This way you can easily access them whenever you need them.
“Sort and file important financial documents, both physical and digital,” Kovar said. “This includes bank statements, tax documents, insurance policies and investment records. Well-organized financial documents make it easier to access information when needed, such as for tax preparation or financial planning. It also helps in tracking your financial journey and making informed decisions.”
Set up a system that makes sense for you. For physical documents, use a filing cabinet and folders to neatly store paperwork by category and year. For digital, create folders in your email, local storage or cloud drive to save PDF statements, scanned receipts and electronic tax returns.
Consolidate Your Financial Accounts
Having numerous financial accounts across different banks and brokerages can become hard to keep track of over time. Take time at the beginning of the year to consolidate and organize your various accounts.
“Simplify your finances by consolidating accounts where possible,” Kovar said. “This could mean moving multiple savings accounts into one or rolling over old 401(k)s. Having fewer accounts simplifies your financial landscape, making it easier to manage your money and keep track of your overall financial health. It can also potentially reduce fees and paperwork.”
Consider paring down to one primary checking and savings account. Additionally, consolidate old 401(k)s and IRAs into a single, current retirement account. This consolidates the number of accounts to monitor and makes it easier to have a simple view of your finances.
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This article originally appeared on GOBankingRates.com: I’m a Financial Planner: 6 Best Ways To Organize Your Finances Early in Year