Is money at the top of your New Year’s resolutions this year? You are in good company. A majority of Americans make some type of resolution, many of which are financial. But do you know where to start? It can be overwhelming when you aren’t sure which step to take first.
1. Pay Down Credit Card Debt
This may sound overwhelming, but don’t get ahead of yourself. While getting out of credit card debt is ideal, it may be too much to bite off at first. Instead, choose a percentage you want to pay off this year. Make it a percentage that will make your credit card debt more manageable. For example, if you have around the average credit card debt of $8,000 like most Americans, aim to pay off 20% of it, which is $1,600. You choose the percentage you’re comfortable achieving. Once you reach that goal, don’t be afraid to set another higher goal.
You can use one of the many methods available including the snowball or avalanche method to get out of debt. You choose the one that resonates with you. Think about what’s most important to you - is it showing progress or paying off the debt with the highest interest rates?
2. Make a Budget
Believe it or not, millions of Americans operate without a budget. That’s like starting your day without a plan. Don’t do it. Budgets don’t have to be overwhelming or complicated. Choose a method, one that you’ll stick to and use it.
The envelope method is a great option as it’s a no-nonsense budget that lets you know exactly where you stand each month by category. You divvy up your income into each category including the obvious payments, like housing and utilities as well as other categories, such as food, clothing, and entertainment. Once your envelope for a category is empty, you don’t spend in that category again until the next month. The envelope method isn’t the only option, of course, there is also the 50/20/30 budget and the zero-sum budget as well.
3. Time your Bills with Your Paycheck
How many times do you find yourself without funds to pay a bill because you waited until right before the due date to pay it? Put an end to that habit by paying your bills as soon as you get paid. Don’t wait for the due date. This way you earmark the money you need to pay a bill right away.
If you have extra money after you pay your bills, then you can spend it on luxuries. You can also set up automatic payments for twice a month. Whether they both coincide with your pay dates or you set one up that is right before the due date, you cut your debt down even faster, limiting interest charged on a credit card and avoiding late fees on any bills.
4. Start an emergency fund
If you are like almost 30% of Americans, you don’t have an emergency fund set up yet, but now’s the best time to start. An emergency fund helps during unexpected events. It decreases the chance of you having to rack up your credit card debt or sacrifice other bills just to fund the emergency.
Try setting up automatic deposits from your paycheck directly to your savings account. This way you have a lower chance of using the funds when they aren’t in your regular spending account. Start small at first so as not to feel as if you have to sacrifice too much, but set a goal to build on your savings as much as possible. Ultimately, you should have between three and six months’ worth of expenses saved, but you can get there eventually - just start small today.
5. Increase Your Credit Score
Your credit score dictates a lot in your life. It controls whether you get approved for loans, the interest rates banks and credit cards charge, your insurance rates (in some states), and your ability to rent in some cases. If you don’t know your credit score, you may have access to it free of charge. Services like CreditSesame will help you get your score and also provide a personalized report to help you improve yours. Either way, you need to use tactics to increase it.
A few good habits to increase your credit score include:
- Pay your bills on time
- Reduce your outstanding credit card debt
- Watch how many loans/credit cards you apply for
- Keep your credit cards open even if you don’t use them
- Use a credit card for regular expenses and pay the balance off each month
6. Boost Your Income
Today it’s easy to have multiple income streams rather than just relying on your main job. Whether you start a side hustle online or in person or you generate passive income streams by investing in real estate crowdfunding or stocks, diversify your income and get multiple streams coming in.
Side hustles are popular because there are thousands of options at your disposal. Whether you are handy and offer handyman services in your neighborhood or you have a passion for something that you can blog about, you can generate another income stream in addition to your employment income.
What you do with that extra income is important too. Using the tips above to get out of debt, pay your bills on time, and build an emergency fund will help improve the big picture, giving you the best of all worlds.
7. Sign up for Free Credit Monitoring
Wouldn’t it be great if someone was watching over your credit 24/7? It’s possible with credit monitoring. Today there are many free services, such as CreditSesame and Credit Karma available that send you immediate notifications when something changes on your credit report.
Why would you want credit monitoring? It’s a great way to catch fraud or mistakes instantly. If you don’t catch them, they damage your credit score, which can take months or years to recover from. When you know right away that something is wrong, you can take steps to fix it. Wouldn’t you rather know now that something is wrong rather than finding out the unpleasant way when you go to apply for a loan and get denied?
8. Reconsider your job
Not everyone needs to leave their job to level up, but it may be an option. Take a long, hard look at your current employment. Are you paid what you are worth? Is there room for advancement? If so, think about what you need to do to reach those goals.
If you aren’t paid enough, negotiate with your employer. Before you start, make a list of the reasons you are worth more and discuss those reasons with your boss. Maybe it’s not money you are concerned with, but rather the benefits. They are worth money too. For example, if you are overpaying for health insurance, you may want to negotiate a higher stipend from your employer. If there’s nothing your employer can do, consider ways you can find a new job with better opportunities. It may require you to go back to school or get training somewhere, but investing in yourself is one of the best investments you can make.
9. Max Out Your 401K Contributions
Do you save for retirement? If not, this is the year to start especially if your employer matches a percentage of your contributions. Think of it like free money. If you contribute $2,000 and your employer matches that amount, you just doubled your baseline retirement savings and have double the amount to grow with compounded interest.
Even if your employer doesn’t contribute, save for retirement, whether it’s a 401K, IRA, or Roth IRA - set money aside that you won’t touch until you retire. It may require a little sacrifice today, but it will set you up for those golden years when you are supposed to enjoy life and not have to worry about your finances.
10. Get Educated
At least half of Americans today have very little financial literacy. It’s time to increase your knowledge, giving you a better chance at a successful financial future. This doesn’t mean you must be the next best day trader or you need to understand real estate investments.
You should have a basic understanding of credit scores, emergency savings, how debt affects your financial future, and saving for retirement. Set the intention this year to not only set personal financial resolutions, but to truly understand the reason behind them. When you have a thorough understanding, you’ll feel more motivated to take some of the steps above and achieve the best financial life you can.
Are you ready to set your financial New Year’s resolutions? It’s never too late to start and there’s no better time to start than now. Even if you set small personal finance resolutions - the key is to start somewhere. Let the motivation of your success fuel you forward - encouraging you to take bigger steps as you gain momentum, allowing you to achieve greatness in your financial life.