The material presented here is for educational purposes only, and is not intended to be used as financial, investment, or legal advice.
Easy Financial Resolutions You Can Do Any Time of Year
Every January 1st, around 40% of Americans pledge to make a life change. Not surprisingly, health and money goals top the list of the most popular financial New Year resolutions. Some focus on tangible items such as taking a much-needed summer vacation or saving $1,000. For others, more general resolutions suffice — for example, eating healthier or exercising more.
Unfortunately, only 8% of those who make New Year’s resolutions actually keep them. The key, according to Forbes magazine, is choosing simple goals with quantifiable results. Strive to lose ten pounds by August, not just “lose weight.” Pledge to put $50 extra into your savings account each week, not “save more money.” Pay down debt by striving to pay off a small credit card bill before your larger student loan. You can also make resolutions at any time of year — not just around the holidays!
Any step you take towards improving your financial situation is a good one. However, you can boost the likelihood of keeping your resolutions by setting attainable goals for the months ahead. Here are just a few of the concrete first steps you can take on the road to better financial health.
1. Do a financial check-up:
Once a year, most people turn to their doctor for a routine physical. Is everything working properly? Am I in good health? Do I need to change anything next year? These are the same questions you should be asking about your finances. A survey by Northwestern Mutual found that money is the biggest source of stress for 44% of the American population, while a similar study conducted by John Hancock showed that 72% of people are worrying about finances while they’re at work.
Conducting a yearly financial check-up may help alleviate money worries — or at least illuminate problem areas so that they can be addressed. This is the time to take an honest look at your financial situation. Not just your bank accounts and monthly earnings, but the entire picture including investments, savings, debt, insurance and credit situation. Banks and credit unions can help you see the "big picture" of your finances and how you're currently using your credit cards and debit cards.
2. Set a budget:
Senator Elizabeth Warren popularized the 50/30/20 budget, where half of your income goes towards monthly bills, 30% to discretionary items and 20% into savings. But this rule of savings doesn’t apply to everyone. To make a successful budget for the New Year, start by listing each of your monthly bills and required payment amounts. Add budget items for necessary expenditures such as food, insurance and gas based on current spending, then incorporate discretionary items including clothing and entertainment. Make line items for savings and investments, if applicable.
Once you have your desired budget in hand, calculate the total expenditure and determine if there is a negative gap between your income and your budget. Take a look at your net monthly income and where your money is really going each month. See if there are any budget items that can be cut or trimmed. Eliminate luxury items. Consider refinancing loans to get a lower rate. If there is still a gap between your earnings and your desired budget, you may want to look at ways to increase your earnings. You could ask for a pay raise, seek overtime or get a second job to help you boost your budget. Personal finance mobile apps such as Mint and Wally can keep you on track during the budgeting process.
3. Boost your emergency fund:
Economists generally recommend having between two and ten months’ salary set aside in the event of a job loss or unexpected expense. Unfortunately, many Americans still live paycheck to paycheck. According to a Bankrate.com survey, 29% have no emergency fund at all, while more than one-fifth of respondents with emergency funds said they had saved less than three months’ worth of expenses. Having a monetary cushion to fall back on can be key to reducing financial worry.
Use a separate savings account for your emergency fund, rather than a checking account, and decide what dollar amount you’ll need to feel comfortable should you become unemployed or face unexpected medical bills. Put some (or all) of your budget for savings towards your emergency fund at the beginning of the year. Using online banking, keep track of how much you're saving. Once you’ve reached your goal of having 3-6 months’ worth of living expenses set aside, you can then resume saving for purchases and larger items.
4. Choose new accounts wisely:
Whether your big goal is decreasing your debt load or saving money in the long-term, you'll need the right products and services from your credit union to get started. A money market account will generally offer you a higher annual percentage yield over a savings account, meaning that you will earn more interest with this type of account. The downside is there is typically a minimum balance/deposit requirement and the number of withdrawals and transfers you can make is limited.
No matter what type of deposit account you're looking to get, you'll want to make sure that the bank or credit union you choose has great customer service as well as high interest rates. There’s nothing worse than trying to deal with a bank that doesn’t have your best interests at heart. Also, read any account agreements carefully, especially updates to your credit card terms. Ask yourself if you're getting the best deal you can. Could there be a better credit card out there for achieving your goals? For example, you might consider a travel card if you use it for work trips, or a cashback rewards card that gives you a percentage back on your transactions.
Now that your budget is in order and your emergency fund replenished, what next? Once you’ve tackled these four resolutions, it will be easier to move on to more specific, individualized goals such as improving your credit score or paying down all of your existing debt. Remember not to be too hard on yourself if you wander off-budget or your emergency fund gets low. While it’s desirable to set a deadline for achieving your financial goals, it’s also important to be flexible as situations change.
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