January 1, 2020
New Year’s Resolutions
If you’re like most folks who commit to a new year’s resolution, your goal likely has to do with either fitness or finances. Unfortunately, the newly resolved rarely make it past February with their new habits.
We’re here to help with 10 financial resolutions and tips to help you go the distance, powering your potential throughout the entire year.
1. Improve your credit score
To get where you want to go, you have to know where you stand.
Your credit score is essentially a grade you get based on your financial history. It’s calculated by three reporting agencies—Transunion, Experian, and Equifax—each of which offers you one free credit report each year. You can order yours at their websites, or contact us to help you access your report.
Credit scores range from 300 – 850. Scores below 600 are frowned upon by lenders and may result in higher interest rates, if not outright rejection. Scores between 600 and 700 are considered decent, and scores above 700 are good.
In some cases, you can raise your credit score drastically, but it takes time and consistency. To start, commit yourself to making payments on time and paying down your debt.
2. Create a Budget
According to the National Foundation for Credit Counseling, only 4 in 10 adults have a budget. Creating a budget helps you assess your income potential and see where you’re wasting money.
Making one is easy. Simply gather your bills from the past few months and list out your recurring expenses—bills, groceries, loan payments, subscription accounts, etc., then rank them from most important to least important. Add up the total cost of these expenses and subtract them from your household’s monthly take-home income.
The amount you have left over is your disposable income. This is the money that you get to choose how to spend. To increase your disposable income, return to your list of recurring expenses and see what you could do without.
3. Track and review your expenses weekly
There’s no point in creating a budget if you don’t check in to make sure you’re sticking to it.
Most likely, you’re spending more money on impulsive, frivolous purchases than you realize. Be intentional about sitting down each week to review what you spent money on and where you can cut costs next week. Not to mention, you can use this time to look forward and anticipate upcoming expenses—for instance, tax season or holiday gift-buying—and prepare to factor those purchases into your budget.
4. Pay down credit card debt
The average American household owes roughly $8,700 in credit card debt. This is the year to get out from under the weight of credit card debt.
Realistically, you might strive to pay off 20 percent of your credit card debt this year if you owe the average mentioned above. That’d call for monthly payments of around $145.
Of course, the longer your debt goes unpaid, the more interest it accrues. We’d advise paying your credit card debt down as fast as possible within the limits of your disposable income.
5. Build up an emergency fund
If you had to handle a $400 emergency today, would you be able to pay for it? Most Americans couldn’t. An emergency fund can help protect you from the unpredictable—a loss of employment, or a medical catastrophe.
Take a look at your disposable income and get an idea of how much you’re willing to save. It’s smart to save up $1,000 as quickly as possible, but ultimately you should strive to save at least three months’ worth of take-home pay.
For this year, shoot to add one month’s total pay for your emergency fund. You can position yourself to succeed by opening a savings account if you haven’t already. Once you’ve decided on a monthly savings amount, automate that payment, if possible, so it comes directly out of your paycheck.
6. Avoid common pitfalls
Though many Americans waste money by living outside their means—buying big things they can’t afford like cars and houses—most people lose money a little bit at a time through habitual and impulse spending.
We’re talking about eating out, that daily coffee purchase, unnecessary clothing purchases, etc.
Examine your budget and be intentional about what you spend money on. Sure, you might keep your standing date night with your spouse, but maybe you could stop smoking or make coffee at home.
To give you an idea, if you purchase a $2.50 cup of coffee three times per week, that amounts to nearly $400 per year. That money would go a long way toward your emergency fund or credit card debt.
7. Build toward retirement
No matter what age or life stage you find yourself in, you’re never too late to start saving for retirement. If your employer offers a 401(k) plan, that is likely a good place to start.
Outside of a 401(k), Individual Retirement Accounts are a common financial tool used to save for retirement. There are two types, and they mainly differ in how they are taxed.
There are many other financial tools that can help you prepare for the golden years. Don’t wait. Contact us today to make a plan.
8. Become more financially literate
If your financial knowledge doesn’t go far past your checking account, that’s ok. It’s never too late to start learning how to get the most out of your finances. Research popular blogs or podcasts about finances, and make it a goal to read one book this year that will make you more financially literate.
9. Make an extra payment on your mortgage
Making one extra payment per year on your mortgage can save you a significant amount of money over the course of your loan.
In most 30-year mortgages, about half the total interest accrues in the first 10 years. On a $120,000 mortgage at a 4.5 percent interest rate, making an extra payment each year would save you over $16,000 over the life of your loan.
To really attack your mortgage, pay an extra hundred dollars each month. Using this same mortgage example, adding $100 to your payment would ultimately save you nearly $28,000.
Just make sure these increases fit within your disposable income budget, and this resolution should become a priority after paying down your credit card debt.
10. Get healthier
Being unhealthy costs money, whether those costs come in the form of medical expenses, unhealthy purchases like soft drinks, or decreased productivity due to bad health.
There are tons of ways to exercise that won’t break the bank, like running or yoga. Eating healthier will likely mean cooking more of your own meals and spending less on snacks, which fits into a few of the other goals on our list.
More importantly, you’ll feel better, and that will enable you to make better financial decisions that pay off in the long term.
Meeting financial goals take time and consistency. It won’t happen overnight, but if you set your sights on a goal, make a plan, and stick to it, you’ll be amazed at what you will have accomplished by this time next year.