Over the last few days, it’s likely you’ll have made some New Year’s resolutions. Losing weight, eating well and quitting smoking are some of the more common ones.
But have you considered resolutions for your finances? There’s no better time to do so. The sooner you establish healthy financial habits, the sooner you could be financially independent.
With that in mind, here are five financial New Year’s resolutions that could put you on the path to financial freedom in 2018.
Pay yourself first
Let’s start with the basics. If you aspire to being financially independent, you need to spend less than you earn. The best way to do this? Pay yourself first.
Most people receive their pay cheque, spend it, and hope to save anything left over at the end of the month. This is a recipe for disaster. Often, there’s nothing left to save at month end. If you’re serious about saving money, you need to save first and spend later.
The key here is to save a proportion of your pay as soon as you receive your salary. Pay yourself even before you pay your mortgage, rent or bills. Even if you only save 5%, that’s better than nothing. It will add up over time.
Eliminate credit card debt
Credit card debt is a wealth destroyer. Therefore, one of the most obvious things you can do to be more financially free this year, is to pay it all off.
Think about it this way: if you have £1,000 in a savings account, the interest you’ll receive is likely to be around £10-£15 per year. If you have £1,000 credit card debt, the interest you’ll pay will be around £180. That’s an unhealthy difference. Pay off your credit card debt as soon as possible.
Learn about investing
If you don’t know much about investing, an excellent New Year’s resolution could be to learn about investing basics.
The internet has made it easier than ever to learn how to invest. Alternatively, read a few books on investing. You can pick up a copy of Investing for Dummies – UK for under a tenner on eBay. As Benjamin Franklin once said: “An investment in knowledge pays the best interest.”
Once you have an understanding of investing basics, the key is to invest on a regular basis. This is also called ‘averaging in.’ The advantage of this strategy is that it reduces the risk of investing a lump sum at the top of the market. This is particularly relevant now, with global markets at all-time highs. By investing on a regular basis you’ll be able to buy more shares if markets fall.
Keep it simple
Lastly, don’t overcomplicate things. As Warren Buffett says: “Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, 10 and 20 years from now.”
That doesn’t sound too hard does it? Pick out high-quality businesses and hold them for the long term, reinvesting your dividends along the way. You’ll be on the path to financial freedom before you know it.
Good luck with your investing in 2018.
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