As the year begins, many of us start thinking about how we can make improvements in various aspects of our lives. One critical area is managing our finances better, as it is directly related to mental and physical health. This is where we have to consider sound financial tips.
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Managing finances should not be as difficult as many of us think. In this comprehensive article, we will explore six ways anyone can properly manage their finances in 2024.
- Revisit Your Household Budget
Start the year by taking a strong look at the budget and expenses for 2023. Examine how much you earned on average each month, along with all expenses—major and minor. Also, consider the assets you have. Reassessing your budget may be especially valuable now, as still-high inflation requires households to continue allocating more for essentials like foodstuffs and fuel.
Once that is done, you gain a perspective on annual income, annual expenses, areas for major cuts, and where more finances could be allocated. To help track spending, there are many online applications available. If you have trouble getting started, try Morgan Stanley’s financial management tools, available on Morgan Stanley Online, which can help you track income and expenses and create custom budgets to optimize how you put your money to work.
- Check Your Emergency Fund
Do you have enough money set aside for emergencies? Wait, do you even have money set aside for rainy days? Well, here is an opportunity to think about why it is important. It’s always a good idea to double-check that you have adequate funds set aside for a rainy day—especially in times when the economy may be slowing from its once robust pace. An emergency fund can help keep you financially afloat in unforeseen life circumstances, such as a change in your or a loved one’s employment situation. A general rule of thumb for an emergency fund is to save three to six months’ worth of living expenses in a safe, liquid account.
- Tackle Your Debt
Even if you’re already good at managing debt, consider taking steps to help reduce and consolidate it further. For example, if you’re expecting a raise or year-end bonus, consider applying the extra income to any balances with high interest rates.
Think about consolidating any remaining debt, which may help you swap varying interest rates on multiple loans, credit lines, or cards for a potentially lower rate on a single loan. Reducing the number of loans you carry can also help simplify your financial life and ease money stress. You may want to ask your Financial Advisor about possible strategies.
- Make Sure You’re on Track with Your Goals
Check whether you’re still tracking toward your goals, such as saving and investing for a comfortable retirement. If recent changes in the market or other factors have temporarily thrown you off course, work with your Financial Advisor to figure out how you can get back on the right path.
If you’re still on track with your goals, talk with your Financial Advisor about new goals you want to work toward. For example, in 2023, were you able to boost your contributions to a workplace retirement plan or individual retirement account? In 2024, can you contribute even more to these or other accounts? Your Morgan Stanley Financial Advisor can help you look holistically at the year ahead and assess your progress towards your goals.
- Revisit Your Asset Allocation
Think about revisiting your asset allocation, or how your investments are split within your portfolio amongst equities, fixed income, and cash. Asset allocation in your portfolio should ideally reflect your various life stages and the saving goals associated with them.
For example, as you near retirement, you may consider moving portions of your portfolio into a more conservative asset allocation like fixed income. If recent gains or losses in financial markets have caused your portfolio investments to stray away from your target allocation, it may be time to rebalance.
Remember, as you near retirement age, you have less ability to absorb volatility from the stock market.
- Update Your Estate and Insurance Plans
The new year can also be a good time to review and consider:
- Creating or updating your estate plan: If you don’t have an estate plan consisting of a Last Will and Testament, power of attorney, or health care proxy in place, consider completing your estate plan as a priority for this coming year. An estate plan ensures that your assets are distributed according to your wishes.
- Updating and reviewing any life insurance policies: Make sure there’s sufficient coverage for your family’s current financial needs. If your current employer doesn’t offer an insurance policy, you may want to purchase your own insurance policy. If you currently have life insurance, it’s crucial to access and optimize your coverage to safeguard your wealth, livelihood, and loved ones effectively. If your net worth has grown or if there have been changes in your liabilities, now is an opportune moment to ensure that your coverage aligns with your increased needs and provides comprehensive protection.
By February 1st, many of us would have lost track of our resolutions. To make sure that doesn’t happen in 2024, be sure to connect with your Financial Advisor to discuss your financial goals for the year ahead and beyond.