By Pamela Plick, CFP®, CDFA™, AWMA
Making smart financial choices increases your ability to achieve your financial goals. In order to achieve your vision for your life, you need to have goals. Once you have set goals you will make daily financial choices that affect the success of meeting them. At times we all get distracted or have a temporary lapse in the quality of our choices. But over the long term it is important to achieving your goals that you make smart financial choices.
Here are five ways you can be smarter with your money:
Create a Budget
Do you know where your money goes? Do you have a positive cash flow? If you answer is no to either of these questions or I don’t know, you need to create a spending plan (budget). We all know how important it is to live within our means but it is equally important to identify where your money is being spent. Creating a spending plan also helps you identify areas where you can potentially reallocate to fund your goals. (For more, see: Best 5 Money-Saving Tips to Get out of Debt.)
Reduce High Interest Debt
Making sure that you maintain a good credit history is one of the most important steps you can take. Take steps to reduce credit card and other high interest debt. It is also important to have at least one credit card in your name. In addition, you should check your credit report at least annually. You can obtain a free copy of your credit report from annualcreditreport.com.
Take An Active Role in Your Investments and Retirement Plans
Stay informed and engaged by reviewing your statements. One of the key areas to pay attention to are management fees in your investments. Know what you are paying. The higher the fee the lower your return. Besides reviewing your statements, you should also read financial magazines or websites and attend workshops.
Don’t Be Overly Conservative With Investments
What is your overall investment objective? Do you want growth in your portfolio or is your primary focus to protect what you have? When creating your investment strategy it is important to have a long-term perspective based on your goals and risk tolerance and time horizon but not be overly conservative. Women typically live longer than men. The consequence of being too conservative is that you may not achieve your long-term investment goal or you may outlive your money. At least part of your portfolio should be invested for long-term growth.
Consider Working With a Financial Planner
A financial planning professional can help you translate your information into some realistic goals so that they can develop strategies that make sense for you. It is important to work with an advisor you trust and that truly understands you, your goals and your situation.
Being smart with your money is about making good financial choices that are in alignment with your financial goals. Remember, you are the CFO of your life. It is important to take some time to plan your finances before the end of the year. These five strategies can help you build the financial future you desire. (For more from this author, see: 3 Smart Ways to Update Your Investment Plan.)
This article was originally published on Investopedia.