The New Year period is a great time to reflect on where our personal finances are and where they could get to in 2026 and beyond.
Personal finances play a big part in our wealth because they provide the engine for investing and other efforts that improve our financial picture.
Depending on what your finances look like, doing one or more of the following steps could have a big impact.
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Spend less than you earn
Each month, our personal finances have their own 'profit and loss'. Is more money coming in than going out?
Money doesn't just appear out of nowhere. Income and saving are both important to build wealth.
Whether the income comes from a job, business ownership, dividends, rental profits, interest or something else, we need to have enough money coming in to cover the essentials like shelter, food, transportation and utilities.
After that, it's down to us to decide how much we want to spend on non-essential items and services.
There are a variety of ways to spend less and a few ways to earn more (such as increasing our skills, taking up a side hustle, and so on).
Ultimately, if we earn $10 more than we spend each month, that's building wealth. However, consistently spending more is likely to lead to long-term problems.
Pay down debt
Debt can be one of the most problematic things if it's not used to buy assets that rise in value over time. Most debt comes with an interest cost.
Considering we have to pay the interest with our after-tax money, the interest saving on paying down debt could be comparable to solid returns in the share market. For example, an interest rate of 7.5% for debt could be comparable to a pre-tax return of 10% from the share market. But, that's a guaranteed saving, whereas the share market is not.
If someone has various debts, there are two methods that could make the most sense after paying the required minimum payments.
One option is to pay off the debt with the highest interest rate because this would be the best choice for our personal finances.
But, another option could be more powerful. Dealing with money is a very psychological thing, so paying off debts smallest to largest could be the way to go. Building momentum could be the way to see progress and stay committed to the cause until it's done.
Start investing in (ASX) shares
Compounding is a very powerful financial force. While it works against us if we have debt, it works for us when we invest in assets that grow.
Investing in (ASX) shares is definitely a smart way to build wealth. Overall, shares have a long-term track record of delivering an average return of 10% per year. At that pace, $1,000 turns into $2,000 in around eight years. I reckon Vanguard MSCI Index International Shares ETF (ASX: VGS) is a great place to start investing for the long-term for diversified returns.
Some shares have delivered much stronger returns than 10% per year. Finding these opportunities means identifying which businesses are going to grow profit significantly over time.
In ten years, your future self could be very glad that your investment journey began in 2026.
