Happy New Year! Now is the perfect time to set budget-friendly resolutions that can pave the way to a better financial future. Whether you’re looking to save for a specific goal, pay down debt or make smarter financial decisions, these resolutions can help you manage your money more effectively and help provide ongoing financial wellness for the coming year.
If you don’t have a monthly budget, create one now. Track your spending and income over several months, and then list every ongoing expense along with all your monthly income streams. Assign a dollar amount to each expense category, being sure to include savings and retirement planning. If your columns are equal, or your income exceeds expenses, you’re doing great. However, if your expenses outweigh your income, you’ll need to trim your spending or look for ways to increase your income.
After you’ve created your budget, or if you already have one, resolve to stick to it each month. One of the many budgeting apps, like YNAB, can make this easier. Review your expenses throughout the month or at a designated time once a week to track your progress and make any necessary adjustments.
Did you know that 69% of American households have less than $1,000 in emergency savings?
An emergency fund is your financial safety net. An unexpected expense can easily send you into debt without money set aside for an emergency. Experts recommend having three to six months’ living expenses in your emergency fund. This will give you peace of mind and financial security to avoid unexpected expenses.
Resolve to build an emergency fund this year by setting aside a small sum of money each month until you have a nest egg that can get you through virtually any emergency.
Take a long, hard look at your spending habits. Have your expenses started trickling upward in any area(s)? For most people, expenses will continue to rise with the passage of time and with changing life circumstances unless they make a conscientious effort to control it. Reviewing your spending is the first step in reigning those numbers in. Identify your weak areas and brainstorm for ways to start spending less. For example, you can resolve to start eating out less, cut down on some subscriptions you don’t really need and/or make your own household cleaning products. Remember: Small change today adds up to big bucks tomorrow.
High-interest debt can be a big burden for any budget. In addition to paying interest that essentially goes nowhere, the money paid toward debt could be channeled into savings or investments that can grow significantly over time.
Make this the year you pay down debt, or at least make real headway toward getting rid of it for good. You can choose to prioritize high-interest debts, like credit card balances or personal loans, or work on paying off your smallest debt first to keep your motivation going. Trim your spending and/or increase your income, and use the extra funds to maximize payments on your chosen debt until it’s paid off. Then, move on to the next debt on your list until you’re completely debt-free.
It’s all fine and wonderful to resolve to put more money into savings each month, but how do you turn those good intentions into reality? The answer is simple: by automating your savings.
Set up automatic monthly transfers from your checking account to your savings or investment accounts so you never forget to feed your savings again.
Financial literacy is an invaluable asset. Invest in your financial education this year by reading books, taking online courses, listening to podcasts, or attending seminars on personal finance. Understanding concepts like investing, taxes, and retirement planning will empower you to make informed decisions that can help ensure a financially secure future.
The start of a new year is a great time to set goals to better yourself and your finances. If you liked this article, check out more on our MoneySmart Tips blog!
Your Turn: What are your resolutions for the new year?