5 Steps to Reset Your Finances for 2024!

Happy New Year!

As part of my book research, I listened to a TEDx Talk by Wendy De La Rosa, a Wharton assistant professor, co-creator, and host of the TED series “Your Money and Your Mind.” 

In her TEDx Talk, I learned that taking a “Financial Health Day to get your financial life in order may make sense.” To succeed, you must commit to this day and make it as productive as possible. 

Personally, I like taking a day in January to review my finances and related issues for the coming year. This is a perfect time for a review after blowing my budget on holiday gifts and related travel. This annual exercise only requires a few steps to reset your finances for 2024 and beyond. 

Let’s discuss these steps further.

1. Review your budget and reduce any unnecessary expenses. 

Per Wendy’s TEDx Talk, the first step is to focus on your fixed expenses, and you can best achieve this by using a term most people hate: budgets. As budget director for Hershey for over ten years, I learned annual budgets are critical to any long-range strategic plan. While at Hershey, we created and reviewed five-year operational plans, which helped guide our annual budgeting process. Thus, I decided years ago using budgets would be extremely helpful in keeping my wife and me on a steady path to a happy retirement. 

In its most basic form, a budget is simply a written list of your monthly income and expenses. Ideally, your monthly income will exceed your monthly expenses, with room left over for savings or investments.

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For the past ten years, we have used software called You Need a Budget (YNAB) to make budgeting easier for my wife and me. This software can be accessed online via youneedabudget.com and offers an app for your cell phone, allowing you to quickly enter a transaction and see how much money remains in any expense category. YNAB breaks our monthly budget into four main categories of spending as follows: 

• Immediate obligations (mortgage, utilities, groceries). 
• True expenses (auto maintenance and gas, medical expenses, clothing). 
• Quality of life goals (vacation, fitness). 
• Just for fun (dining out, sporting events). 

I just completed this budget review earlier this week as I noticed that we always have underused or even forgotten subscriptions for apps and streaming services (e.g., Apple TV, Disney+, Sling) that pile up by the end of the year. In that case, I cancel those services and use the money elsewhere in my 2024 budget.

2. Check the status of your retirement goals.

To see if your retirement contributions are on track, start by tallying the balances for all your existing savings and investment accounts. 

As we edged closer to retirement over the last decade of our working life, my wife and I have concentrated on our net worth statement, which allows us to review our long-term goals and ensures we are on track for achieving our retirement targets.

 Net worth is the total of our assets (things we own) minus our total liabilities (things we owe). 

The key assets that lead to a higher net worth include such things as home ownership, retirement savings, and investments.

Hopefully, as you get older, your assets grow while your liabilities decline to the state of nirvana with no debt. Through saving efforts and tracking our monthly budget, my wife and I were able to achieve this debt-free nirvana in 2017.

Thanks to a much-improved stock market in 2023, our net worth statement improved as of December 31, 2023. This was a welcome sight after seeing the opposite result in 2022. 

I am huge fan of the savvy investor Warren Buffet, as one of my favorite quotes of his is “The most important quality for an investor is temperament, not intellect.” 

A disciplined investor is a wealthy investors because they have learned that market fluctuations are normal and that patience pays off. This was certainly the case if you were disciplined enough to stay in the stock market during the painful declines experienced throughout 2022 only to see the tides turn (as they always do eventually!) in 2023. 

3. Establish or add to your emergency fund. 

Financial planners commonly recommend an emergency fund of at least 3-6 months of your living expenses to cover unexpected costs. This calculation is much easier if you use some budgeting tool, as discussed in step #1 above. 

The purpose of an emergency fund is to avoid using your credit card for unexpected expenses since they come with high-interest rates that currently average around the ridiculously high rate of 21%! As some of you may recall, emergency funds were tested during the pandemic years of 2020-2021, when many folks lost their jobs due to cost-saving measures.

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If the 3-6 months of emergency fund savings seems daunting, then I would advise setting aside a reasonable amount (say $1,000). To ensure you are prepared for the unexpected in 2024, start making monthly contributions to build up your emergency fund, especially if you don’t have one already. You will be thankful when that unplanned expense crops up in 2024 (e.g., replace a HVAC unit, roof repair/replacement or your used vehicle breaks down). By having a topped-up emergency fund in place, you should be able to cover most unexpected costs in 2024.

4. Check your credit reports.

It’s particularly important to look at your credit reports at least once a year, as the data in these reports influence your credit score. Your credit score determines how much money you will spend on interest for loans, credit cards, and automobile financing: The higher the score, the less you pay in interest. Getting your credit report can also help protect your credit history from errors and help you spot signs of identity theft.

Check to be sure the information is accurate, complete, and up to date. It’s important to do this at least once a year. Be sure to check before you apply for credit, a loan, insurance, or a job. If you find mistakes on your credit report, contact the credit bureaus and the business that supplied the information to get them corrected.

Check to help spot any identity theft. Mistakes on your credit report might be a sign of identity theft. Once identity thieves steal your personal information — like your name, date of birth, address, credit card or bank account, Social Security, or medical insurance account numbers — they can drain your bank account, run up charges on your credit cards, get new credit cards in your name, open a phone, cable, or another utility account in your name, steal your tax refund, use your health insurance to get medical care or pretend to be you if they are arrested.

There are many types of credit scores, but those most used are derived from credit reports from one of the three major credit bureaus: Equifax, TransUnion, and Experian. Credit reports include detailed information like your loan payment history, credit inquiries, and whether you have debt that has been sent to a collection agency. For that reason, you will want to check your credit history report for each credit bureau at least once a year. 

To do so, go to AnnualCreditReport.com and select “Request your free credit reports.” Alternatively, you can call 1-877-322-8228. You can choose to download the reports or have them mailed to you.

Federal law gives you the right to get a free copy of your credit report every 12 months from each of the three nationwide credit bureaus. In addition, the three bureaus have permanently extended a program that lets you check your credit report once a week for free.

5. Change your passwords. 

Some cybersecurity experts recommend changing your password every few months, while others say a strong password does not need to be changed that often. The key aspects of a strong password are length (the longer, the better), a mix of letters (upper and lower case), numbers, and symbols; no ties to your personal information, and no dictionary words. Using an encrypted password manager is another commonly recommended way to protect your passwords. 

I make sure that I change my passwords for ALL my financial accounts at least once a year. Another tip is that I have heard of others who periodically use the “Password Checkup” function in Google Password Manager to identify any compromised passwords and then change them as necessary.

After having my email hacked for two consecutive years in 2021-2022, I have clearly learned the importance of a strong password. In addition, I now utilize Two-factor authentication on all accounts, which adds an extra layer of security to identity and access management programs. 

Final Thoughts

It’s cold in most of the U.S. during January, making it the perfect time to conduct your “Financial Health Day.” I just completed mine this week as we made some adjustments to our 2024 Budget, checked credit reports, and changed our passwords for all our financial accounts. 

Share in the comments any steps you have taken to reset your finances for 2024!