Keep Your Finances Moving Forward

| December 21, 2018

financesWe’re coming up on the end of the year, yes already!

During this time of year, we sometimes feel pressured to make specific New Year’s resolutions/goals. As it relates to finance, we may have resolutions like I will get rid of all my debt next year or I will invest triple the amount into the stock market next year.

Sometimes our resolutions may be overwhelming or unrealistic. We may not achieve them and as a result feel guilty or unaccomplished.

And so I thought about this topic and came to the realization that if I had to choose one financial goal, it would be to keep my finances moving forward. What does this mean, moving forward? It means to continue to take steps to improve your finances and avoid anything that may hurt your finances. Even though it may sound easy, there are many factors that can easily make people go backwards.

Still, even if you have a set-back in your finances, instantly find ways to move forward. For example, if you lost your job, find temporary gigs until you find a replacement job such as driving an Uber for while or tutoring a subject you’re knowledgeable in.

Continue To Invest

We may never agree as a whole when the market will correct or crash. But we can agree that is has been volatile as of recent.

We shouldn’t allow the volatility to get the best of us; that is, stop investing altogether. We should instead treat the volatility and consequently red days in the market as an opportunity to buy investments at cheaper prices.

If you’re lucky enough to receive a bonus from your company this year, invest most if not all of it. Even though interest rates have risen recently,you’re much better off investing funds for a long-term period, i.e. 10 or more years, based on historical data.

Investing in the market is a long-term game. Dara from Crestmont Research shows that in any 10 year period, the stock market has produced an average 10% return. So if you’re invested in the stock market for at least 10 years, your investments will most likely do better than when you started.

Simply put, let’s say you receive a $1,000 bonus. If you put that into the 10 year CD earning 3.15% (present yield per Bankrate), you’ll earn $363.62. However, if you put $1,000 to work in a S&P 500 index fund that can earn an average of 10% per year over 10 years, you’ll earn $1,593.74! And this doesn’t even include dividend income, which could make it more! For long-term results, continue to invest, not save.

And if you plan to withdraw in a few years, continue to invest, but in safer assets like bonds or treasury bills so that you may earn interest.

Continue To Avoid Debt

Sometimes you have to take on debt, life happens I get it. This could be due to a medical emergency or a job loss so to pay for basic necessities.

But other times, debt is completely avoidable.  I drive a car that is over 14 years old. That’s not very common these days with so much consumerism – i.e., a “once in a year winter event to get into a new XXX sedan or SUV”. There are constant commercials on TV for these winter/holiday deals on cars. Sure I could take them up on this event, but that would mean taking on debt too.

My car runs great, has less than 120,000 miles and has been with my family since it was purchased brand new so I know its history.

When you acquire debt, the winner in the transaction is usually the creditor, the entity you’re borrowing from. It’s as simple as that. Taking on debt usually triggers the following: (1) paying more than the amount borrowed over time due to interest and transaction costs, (2) adjusting your budget to account for the outgoing payment each month, (3) possibly adjusting your lifestyle overall – i.e. cutting back in other areas to facilitate the debt payment, (4) and accounting for the risk of hurting your credit score if you aren’t able to make payments.

So if you don’t have the money to pay for something in cash, ask yourself if you really need that item or service for long-lasting quality of life. If yes, it may be for legitimate reasons mentioned above.

And if you do need to take on debt, focus on the price of an item first and foremost rather than the monthly payment amount. Also focus on obtaining the lowest interest rate and shortest term possible. This topic deserves greater attention, which I may expand upon in a future post.

Continue To Assess Your Finances

You may not realize it, but just assessing your finances means you’re moving forward. Why? Because when you review your finances, you are looking for opportunities to optimize.

For example, you may go into your brokerage account after a few months and find that you have hundreds in your cash balance due to dividends earned. Don’t cash these dividends out; see the dividends earned as a buying opportunity for more investments. When you lock in your earnings into more investments, you practice discipline within your investment mindset.

You may also see in your accounts how your investment allocation fits in with your investment plan. For example, if your allocation has 25% in small cap stocks and your plan has designated 20%, you may want to rebalance to realign your actual with your plan. This realignment also locks in the gains from your portfolio’s increase due to small cap holdings.

And assessing your finances is easier than thanks to technology. There is information at your fingertips when you sign up for free financial tools such as Personal Capital. It’s one of my favorites.

Don’t believe that because you are simply continuing to do what you’re already doing, that you’re not doing anything. You are in-fact, doing something; you’re maintaining and optimizing your finances.

Note: This article originally appeared at Simple Money Man.

 

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Category: Personal Finance

About the Author ()

Hi there! A bit about me; well, I’m in my 30’s and have a steady job in Accounting & Auditing. I’ve been in the Finance & Accounting profession for almost 15 years and have held positions with a CPA firm performing audits of Federal agency programs, a Finance Services Fortune 500 company based in Baltimore, MD, a Federal agency in Washington DC, and currently am working for the State of Maryland. I have a CPA license and a CIA certification that I earned many years ago (full disclosure: may not remember some of the stuff I learned….c’mon it was years ago and like a gazillion topics). What you will get out of this blog: You’ll (hopefully want to) read about simple concepts, simple stories simple language and simple examples all related to money and personal finance cause I’m a simple man. You may also notice a touch of humor in my writing too (hopefully that doesn’t get annoying cause it’s just how I roll). What you may not get: sophisticated writing, complete sentences, corecet spelling (I do know how to spell correct though), and a bunch of stats, figures, and references to things (sometimes you may get a bit of that stuff).

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