About 75 percent of people plan to make at least one personal finance resolution, according to TD Ameritrade Holding Corp. While it may seem daunting, finding financial peace is not as difficult as you might think - just be ready to bare it all and get financially naked.
Tips and suggestions to help fortify a fruitful new year:
- Be gentle on yourself: Before you even begin to tackle your holiday debt, remember that your financial life is about looking forward and learning from any mistakes.
- Begin damage control: Ignorance can be bliss, but unfortunately not when it comes to your money. Even if you are afraid to look, even if you need a glass of wine, it's important to open those credit card statements. Tally up how much you spent over the holidays and where each dollar went.
- Develop an action plan: New year, new you. Use this time to develop a financial plan to help pay off old debts and prevent new ones. Then, decide on two simple steps you will take over the next couple weeks to put your plan in action. Mark it on the calendar, pull out the bank statements, or contact a financial advisor.
- It's time to get naked: Here are the three essential steps to Get Financially Naked with your partner:
- Understand your AND your partner's "money history" Whether you know it or not, money affects your life every single day, directly or indirectly. Understanding what makes you tick and why, and knowing the same about your partner, will help you make the necessary compromises to find a life that works for both of you. Do a little Financial Foreplay with the exercise on page 34.
- Be clear on your level of "financial compatibility" There are three levels on which couples should assess their money: knowledge, behavior, and interest. The end goal is not for you to become like each other but rather to understand where there are gaps to make sure nothing falls through the cracks. Take the "financial compatibility quiz" on page 64.
- Honor your financial vows As a couple you should annually check in with each other and review what you own, what you owe, what you've earned, what you've spent over the past year, and your credit scores. You want to evaluate whether you are meeting your savings goals, and, if not, what changes you need to make for next year. Since January is the ideal time to review this, now is the perfect time to start gathering that data.
- WRITE MUTUAL FINANCIAL VOWS: If you've never talked about money with your partner, sit down as a couple and write out your joint financial goals. Some people like to do it by time (goal for 1 year, goal for 5 years, goal for 10 years) while others do it by overarching objectives (retire at 65, pay for kids to go to college, take 1 nice vacation a year). Put these goals somewhere where you both can see them. This should be a living document that evolves as your life evolves - review it each year.
- HONOR YOUR FINANCIAL ANNIVERSARY: At the end of each year, as a couple, make a list of your annual income, annual expenses, and amount saved for that year. Then add up all your current assets and liabilities to calculate your net worth. Your goal is to be saving at least 15 percent of your annual household income and to see your net worth (assets - liabilities) rise each year. This is also the time to review your joint financial vows.
- HAVE FINANCIAL DATE NIGHTS: Once or twice a month, check in with each other, over beer and pizza or wine and cheese, and talk about any unexpected inflows or outflows facing your family. These mini check-ins are designed to help you deal with life's inevitable surprises together and make sure you are on track to achieve your financial vows.
- GET INTIMATE WITH YOUR INVESTMENTS: Millions of Americans are diligently saving money in 401(k)s or IRAs and have no idea what they are invested in. You and your spouse need to be sure that you are both aware of how each other is investing your funds, if you have chosen to have joint assets and community property. This will make sure that you are properly diversified as a couple.
- GIVE EACH PERSON SOME FINANCIAL SPACE: If have joint accounts, set a dollar amount that you each are allowed to spend every week or every month "no questions asked" and a dollar amount above which you both agree to consult with each other before spending. This simple step can help alleviate a huge number of marital squabbles about money!
WOULD YOU DUMP YOUR HONEY OVER MONEY?
Ignorance is not bliss-find out if you and your partner are financially compatible
Until you dare to bare it all, you don't really know if your honey's outer public image is an accurate reflection of his or her inner financial reality. For couples, financial compatibility is just as important as a physical or emotional connection and is one of the greatest predictors of whether your relationship will survive long term. So, it's time to ask yourself: Would you dump your honey over money?
ARE YOU DATING A DEADBEAT?
Does your sweetie always insist on picking up the check at a big dinner and/or throw down his or her credit card without even looking at the bill? This could be a sign of innate generosity.
It could also be a red flag for someone who is trying to show off and is doing so by living beyond his or her means, thanks to the "friendly" help of credit cards.
Does your sweetie have a large but sparsely furnished apartment/home? While it's possible that your sweetie is just waiting for his or her personal design sensibility to present itself, more likely than not it's a sign that they've got a case of "Big Hat, No Cattle."
Does your sweetie avoid answering calls on his or her phone? It could be that it's just mom checking in to see how the day is going…but then again, it's also possible that it's a bill collector calling to find out when your partner is going to make good on that car payment, mortgage, credit card, or other outstanding debts.
Does your sweetie ask you to co-sign or buy things in your name, promising to pay you back? Why would a financially responsible person ever ask their significant other to do this? If something smells fishy to you, it's likely not the salmon dinner you cooked last night.
START PEELING BACK THE LAYERS
Before stripping down to your financial bare bones by disclosing what you own, owe, earn, and your credit score, you need to figure out if you and your honey are on the same page. To begin, ask yourself and your partner key questions gauging your knowledge, interest, and behavior regarding finances:
- You know how much money you need to cover your regular monthly expenses.
- You know how much you should aim to save for retirement.
- You know how much money you owe for all your debts and the interest rates you are being charged.
- You understand the basic concepts regarding investing your money.
- You know what your top five financial goals are.
- You are interested in the financial details of your day-to-day life.
- You prioritize having financial security and stability in your life.
- You believe having money leads to good outcomes.
- You always pay your bills on time.
- You regularly look at your bank or other financial account balances.
- You are on track to save 10-percent or more of your before-tax income for retirement.
