Here, we’ll explain how to assess your financial health, set goals, and create a plan to achieve them. Taking control of your finances may feel overwhelming at first, but every small step brings you closer to your goals.
Step 1: Conduct a Financial Health Check
Think of this as your financial “well-being” check-up. By having a clear understanding of your current finances, you can identify how you can improve your finances going forward. Here’s what to review:
Review Your Income and Expenses
Start by looking at your monthly income and expenses. Gather copies of your bank and credit card statements and write down how much money comes in each month and where that money goes. Categorise your spending into essential expenses (e.g. housing, utilities, groceries, debt) and non-essential expenses (e.g. dining out, subscriptions, entertainment).
Questions to ask yourself
- Am I spending more than I earn?
- Are there areas where I can cut back?
Review Your Debts
Review any debt you have including credit cards, bank overdrafts, personal loans, car loans, and mortgages. Write down the balance, interest rate, and minimum monthly payment for each.
Questions to ask yourself
- Am I keeping up with minimum payments?
- Can I pay off more debt each month?
- Can I prioritise paying off high-interest debt?
Check Your Savings
Review your emergency fund, retirement funds, and any other savings goals. Ideally, your emergency fund should cover 3 - 6 months of essential expenses.
Questions to ask yourself
- Is my emergency fund sufficient?
- Am I saving enough for retirement and other long-term goals?
Review Your Credit Score
Your credit score impacts your ability to borrow money, secure favourable interest rates and, sometimes, the cost of insurance. Use a free credit report service to check your score, review your credit history for errors and get hints and tips on how to improve your score.
Questions to ask yourself
- Is my credit score healthy?
- Is my credit report accurate?
- What can I do to improve it?
Step 2: Set Clear Financial Goals
Once you understand your current financial situation, it’s time to set goals for the year ahead. These goals should be SMART: Specific, Measurable, Achievable, Relevant, and Time-bound.
Short-Term Goals
Short-term goals are those you aim to achieve within the next 12 months.
Examples include:
• Paying off a specific credit card
• Building a €1,000 emergency fund
• Saving for a holiday or special event
Long-Term Goals
Long-term goals may take several years to accomplish but are just as important.
Examples include:
• Saving for retirement
• Paying off a mortgage
• Building a college fund for your children
Prioritise Your Goals
Not all goals are created equal. Focus on those that will have the most significant impact on your financial well-being. For example, paying off high-interest debt should take precedence over saving for a luxury item.
Step 3: Create a Financial Plan
With your financial goals in mind, it’s time to develop a plan to achieve them. Thi plan should include a budget and how you will repay debt and build savings.
Create a Budget
A budget is a powerful tool to help you manage your money and achieve your goals. A simple approach to budgeting is to adopt the 50/30/20 approach where:
- 50% of your income is allocated for essential spending
- 30% is allocated for discretionary spending
- 20% goes towards repaying debt and building savings
It is then a case of sticking to your budget each month to work towards achieving your financial goals.
Adopt a Debt Repayment Strategy
Choose a debt repayment strategy that works best for you, such as:
- Debt Snowball: Paying off the smallest debts first for quick wins.
- Debt Avalanche: Focussing on debts with the highest interest rates to save money over time.
Automate Your Savings
Banking apps allow you to set up automatic transfers to your savings accounts each day, week or month to help you achieve your savings targets.
Step 4: Plan for the Unexpected
Life is unpredictable, so prepare for emergencies and life’s unexpected events.
Maintain Your Emergency Fund
An emergency fund can help you avoid getting in to debt or derailing your financial goals. Check that your emergency fund is adequate and top it back up if you use it.
Review Your Insurances
Ensure you have adequate insurance to protect you and your family. This might include health, life, home, and vehicle insurance.
Update Your Will and Estate Plan
If you have dependents or significant assets, make sure your Will and estate plan are up to date. Consult a legal or financial advisor if needed.
Step 5: Monitor Your Progress
Improving your finances is not a one-time activity. Regularly review your progress against your goals and adjust your plan as needed.
Review Monthly
Set aside time each month to review your budget, track your expenses, and check your progress toward achieving goals.Adjust as needed.
Celebrate Milestones
Acknowledge and reward yourself when you hit key financial milestones. This can help keep you motivated.
By following this New Year Financial Checklist, you can continue the year with a clear understanding of your finances and create a plan to achieve your financial goals. Start your journey today - grab a notebook or open your favourite financial app and begin Step 1 or go to our simple to do list overleaf.
Remember, financial success doesn’t happen overnight. However, with planning, effort and commitment, you can work towards having a more secure and prosperous future.
Remember, your investments can go up and down and you could end up with less than you started with. Past performance does not guarantee future results. The information provided is financial guidance and should not be considered financial advice.
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