The new year is fast approaching, a favorite time to set goals to improve your physical and mental well-being. But have you thought about your financial health? Less money stress is good for a healthy body and mind. Therefore, we have ten financial resolutions to make a better all-around you for the new year.

“It takes 66 days to form a new habit or break an old one.”

Sometimes, you choose a doughnut instead of a banana, and sometimes, you spend more than you should. That’s okay! Any plan must allow for the occasional treat. Otherwise, you’re doomed to failure. It’s when the occasional treat becomes the frequent treat that problems begin. These financial resolutions will take time; don’t give up. It has been said that forming or breaking a habit takes twenty-one days for simple habits and sixty-six for the harder ones.

These financial resolutions provide boundaries that enable you to enjoy life while building solid long-term financial habits.

1. Calculate your net worth

Your net worth compares your assets to your liabilities at a specific point in time. I have it listed number 1 for a reason. It’s the first step to analyzing your finances. It provides a high-level view and is the perfect starting point to dig deeper.

You always want a positive net worth, although when you’re young and just starting out there probably will be a few years when you’re in the negative. The goal is to see your debt levels decrease, your savings increase, and your net worth continue to grow as you get older and closer to retirement.

As I said, a snapshot of your net worth is only for a specific time. To get the most out of it, you should track it monthly, quarterly, or annually. Trends and patterns will emerge, and whether they are good or bad, it will help you see whether corrective action is required before things get out of hand, or keep you at ease if you’re on the right track.

2. Determine spending and saving habits

Saving money has two components, reducing expenses and putting that extra cash to work for you. You can’t efficiently build a nest egg or reduce debt if you don’t know how much you spend. There are a ton of apps and software that can make it a snap. How detailed you must be is up to you and your current situation.

The first number you need to know is your net income each month. How much cash is going into your savings and checking accounts? Compare your average monthly spending to your monthly net income. If you’re spending more than that, it’s not a good sign and probably means you’re carrying credit card debt.

It’s budgeting 101. You see your monthly net cash deposits and must stay within that constraint. It sounds easy, but for many, it’s not. Your financial outlook is based on your cash flow. It’s so important I wrote a blog about it, which you can read here.

3. Make this the year you’re going to get debt under control

Bad debt equals stress. Even good debt, like a reasonable mortgage, is stressful for many people. If you find your debt is not improving after checking out your net worth, or if you think you can do better, make this the year you turn things around.

First of all, don’t get overwhelmed by the amount of debt you have. Shoot for a 5% or 10% reduction. The following year set the target a little higher. Accept the fact that you may have to sacrifice some to begin the process. That probably is part of the problem. Start small, increasing your debt payments and maybe cutting one thing back per month. It may take time, but it’ll add up.

4. Emergency fund

The bottom line is you need one. Sh!@ happens at the wrong time. Getting out of a jam with a credit card often gets you into a bigger one. I recommend six months of living expenses saved in a money market account. You can call it an unexpected event or dishwasher or refrigerator insurance. Insert whatever appliance breaks.

An emergency fund is always there and will minimize credit card abuse, 401(k) loans, and other potentially ruinous decisions. Like saving for retirement and reducing debt, building a cushion may take a while. An emergency fund allows the rest of your finances to run smoothly when something unexpected occurs. We want everything running like a finely tuned machine. Read more about my thoughts on an emergency fund here.

5. Increase your retirement savings

I just told you to reduce debt, save for emergencies, and now I’m saying increase retirement savings. Yes, you need to do it all. A sensible starting point is 10% of your income. If that’s not possible, begin to save whether its 5%, 2%, or 1%. Just start!

Every time you receive a raise, increase your retirement savings. For example, if you get a 3% raise, increase your retirement plan contribution 1%, and keep 2% for you (and your debt). If you can stick to this strategy whenever you get a raise, retirement will be one sweet, and maybe early, ride. Use time as an ally, 20 or 30 years of increasing will turbocharge your savings.

6. Participate in and reallocate (but not too much!) your 401(k)

Don’t stop participating, for any reason, in your employer’s retirement plan. If they provide any matching, that goes double. Also, never contribute less than the maximum match amount. It’s free money, for goodness sake!

Retirement is a long-term project. Fiddling around with your investments every week will lead to missed opportunities. Focus on the long term, and don’t get flustered when the market drops. I recommend reallocating every quarter at a maximum. Once a year is probably just fine. Your plan may also have the ability to reallocate automatically. That’s even better.

Now it is vital that you have the proper investment allocation for your stage of life. An individual in their twenties shouldn’t have the same allocation as someone in their sixties. Select a balance of investments that fit your current risk tolerance and life situation.

Finally, never invest 100% of your contributions in your company stock. There have been many cases when that didn’t turn out well. Even if your company is the latest “hot thing,” you should diversify, even if just a little bit. Having all your eggs in one basket, i.e., your employment income and retirement savings, is risky.

7. Estate planning

Dying without a will or other end-of-life documents is ignorant, selfish, and lazy. You’re going to die; it’s the only guarantee I make. Why leave your family with difficult decisions and make them scramble to piece together your finances? Here are a few essential things you must have in writing to prevent dilemmas your loved ones would otherwise have to wrestle with:

• Guardian of your children (or maybe the crazy uncle will get them).
• Who will inherit your property?
• A list of all of your accounts, passwords, etc.
• Power of Attorney to allow someone to manage your financial affairs if you are unable to do so.
• Health care proxy: a person appointed to make healthcare decisions when you are incapable.
• A living will: a document that outlines your wishes should you become terminally ill. It’s better to deal with this potential issue now rather than later when emotions make decisions much more difficult.

Please, please, please, if you don’t have any of the above, get them ASAP for your family.

8. Analyze life insurance needs

Life insurance needs change throughout your life. Children, a mortgage, tuition, your age, income, retirement savings, I can go on and on with the other possible factors affecting a need for insurance. An annual review of the coverage you need is a smart idea.

When you die, so does your income. Unfortunately, the ongoing expenses don’t. The primary purpose of life insurance is to replace your lost future income and retirement savings, as well as to cover some of the more significant expenses such as a mortgage or college tuition.

There are two types of life insurance, term and permanent. Although there are times when a permanent life insurance policy is appropriate, I find that to be the exception. A term policy usually does the trick. Have your needs analyzed by your fee-only, non-life-insurance-selling financial advisor to increase the chances of objectivity and compare the costs, benefits, and liabilities of a 10-, 20-, or 30-year term policy versus a permanent policy.

Don’t forget about life insurance through your employer’s benefits. Often a 1x, 2x, 3x, etc., your salary option is a cost-effective, easily-adjustable way to obtain life insurance, and adjusting as needed during open enrollment qualifies as an annual review!

9. Check your credit score

Keeping on top of your credit score is more important than ever. Hacked info is a weekly occurrence. Raise your hand if you’ve had your personal information compromised. Uh, huh, just as I thought, practically everyone.

It’s better to catch it on your terms instead of when you’re trying to get a loan, mortgage, rental place, cell phone, car or home insurance, or even a job. Yes, all of those transactions can initiate a credit check. You are entitled to a free annual credit report from each of the big three credit reporting companies, Equifax, Transunion, and Experian.

You don’t need to get all three at once. In fact, it’s probably a good idea to spread the credit checks evenly throughout the year because it doesn’t take long for the damage to occur. Put it on your calendar to check your credit report three times per year. Here’s the free credit report link bonus.

Financial resolutions = financial plan

Put all of these financial resolutions together, and you have yourself a financial plan. If you’re a do-it-yourself kind of person, write it down and make it a written document. A written-down plan, updated every year, with goals, a checklist, and accountability, is effective.

If you lack discipline, time, desire, etc. Then make an appointment with a CERTIFIED FINANCIAL PLANNER™ PROFESSIONAL to get a financial plan in place. Even if you are a do-it-yourselfer, it may be a good idea to get a second opinion. There’s financial resolution number 10!

Financial care is just as critical as physical and mental well-being. These financial resolutions are essential money management skills that never go out of style. Use them as guideposts, and you’ll have a strong financial base to get you through the tough times and the occasional splurge.

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