New Year’s resolutions are a common annual tradition. Another common annual tradition for many of us is getting off track from what we set out to achieve.
If one of your ambitions is to take control of your money, try to create snackable goals rather than strict resolutions. Here are a few ideas to take on in the New Year.
Track Your Spending
Consider trying a few budgeting apps and programs to see which one works best for you. Some are free, and you can often link your financial accounts to sync recent transactions. You can choose how much you want to spend in different categories. The program can then add up your income and track your progress throughout the month.
Even if you don’t have much free time, a budgeting app can help organize your bank accounts and credit cards in one place. Having a centralized place to check all your purchases makes it easier to spot fraud or unexpected charges. It may also be easier to find ways to cut back and save money.
Create a Debt Payoff Plan
Taking a strategic approach to paying off debts can save you money and help you become debt-free sooner. Here are a few steps you can take to create a personalized plan:
- List all your debts - Create a list of all your current debts (including any subsidized or unsubsidized loans). Next to each, add the current balance, monthly payment, interest rate and repayment terms. You may be able to find this information on your monthly bills or by logging into your online accounts.
- Choose a debt payoff method - These are two popular debt payoff strategies: the avalanche method and the snowball method. The avalanche method can save you money by paying off your highest interest rate debts first. But the snowball method may be more motivating because you’ll focus on paying off the lowest-balance debts first.
- Look into debt refinancing - Refinancing debt involves taking out a new loan to pay off current debts. You could save money by refinancing if you qualify for a lower interest rate. Or you could lower your monthly payments by extending the repayment term - but you’ll pay more overall. Many people refinance their mortgages when rates drop.
These approaches are generally helpful, but you’ll also want to personalize your plan for your needs. For example, you might decide to use the debt avalanche method to pay off debt. But you may choose to exclude your student loans because you’re on track for student loan forgiveness.
Build an Emergency Fund
An emergency fund is money you set aside in an accessible place, such as a savings account, to use during a crisis. Having money on hand for unexpected expenses like a set of new tires can keep you from having to miss payments or take on high-interest debt. Ideally, your emergency fund will be able to cover three to six months’ worth of necessary expenses. But, if you’re starting out, set a goal of saving up $500 or $1,000 to begin.
You’ll also want to decide if it’s best to build an emergency fund or pay down debts. Paying down high-interest debt may take priority. Then, focus on setting up an emergency fund before paying down low-interest debts.
Increase Your Discretionary Income
Your discretionary income is what’s left after you’ve paid all your necessary expenses, including taxes, housing and food. You can increase your discretionary income by cutting expenses and increasing your overall income. Your budget or spend tracking can come in handy here, as you can look for purchases to cut back on. Increasing your income may mean taking on a side gig or working towards moving up in your career.
If you can increase your discretionary income, you can then choose to use the extra money to pay down debts sooner, build your emergency fund or for fun.
Assess Your Retirement Savings
Unless you’re nearing retirement age, you won’t need to do a lot of day-to-day retirement savings management. Still, you want to check in on your account and contributions to make sure you’re on track.
If you save within an employer-sponsored plan, such as a 401(k), review your investment choices and contribution amount. You can use a retirement planning tool to see if you’re on track to meet your goals and adjust your contributions accordingly.
Watch Your Credit
Checking your credit reports can be an easy item to check off your list. You can get a free copy of your credit reports at least once every 12 months from each of the three major credit bureaus. Look for any unusual activity or negative marks on your report, such as an account you don’t remember opening or a late payment when you’re sure you paid on time. The former could be a sign of identity theft.
If you spot errors, you can file a dispute with the credit bureaus and they’ll investigate your claim. Your credit scores are based on your credit reports, so when negative items are corrected or removed, your credit scores may improve as a result. And consider signing up for credit monitoring. You may receive automatic notifications of unusual changes in your credit reports.
Get Organized and Review Your Coverage
Make a point to review your employee benefits and insurance plans early in the year. It’s important to understand your benefits in case there’s an emergency.
You may discover that you have access to benefits that can help you accomplish other goals. For example, some employers offer employee assistance programs (EAPs) as a fringe benefit. Contact your HR department to learn what resources are available to you. You may be able to get free financial planning, mental health support and legal counseling.
Stay Flexible and Go for Your Goals
It’s important to create a roadmap for tackling your financial goals. Be flexible with yourself. If your financial situation changes throughout the year, that’s okay. But when that happens, you can review your plan and set new priorities based on your needs.
Discover additional money-saving tips to help you achieve your financial wellness goals.