Many people view a new year as a chance for a fresh start. It’s a great time to evaluate your financial health and set some goals for improvement. When you set resolutions, it’s important to make them realistic and achievable so that you don’t get discouraged. Here are some ideas to get you started.
Create a budget and stick to it
Budgeting is the best thing you can do for your finances, but many people struggle when it comes to determining amounts. Instead of pulling a number out of thin air, take some time to research and analyze your spending habits. Create a list of all of your mandatory expenses like mortgage or rent, utilities, groceries, loans, etc. If you’re spending more than you’d like on these categories, look for areas where you can make cuts. Try reducing your electricity usage or start clipping coupons before you shop for food.
Once you’ve determined how much you spend on the necessities, compare what’s left over to your monthly income. What other categories do you frequently spend on, and how much can you budget for entertainment? Avoid setting budgets that are unrealistically low; this will just lead to discouragement when you can’t stick to it.
Considering using a budgeting tool like Mint to help track your expenses and stay organized.
Grow your savings account
The amount of savings you have ultimately depends on your financial situation, but most experts say you should have enough to cover six to nine months of living expenses. Unless you already have a substantial amount saved, it isn’t realistic to make this your goal for the year. Instead, work on small progress over time. Refer back to your budget and determine how much you can save each month. Ideally, you should save at least 10% every month. By the end of the year, you’ll be well on your way to a healthy savings account.
Pay down your debt
You already know that the sooner you can pay off your debt, the better. You’ll end up paying less overall by avoiding extra interest accrual.
If you’re able to, set a goal to aggressively pay down your debt this year. Pay more than the minimum amount due to see progress more quickly. Try to trim extra expenses from other budget categories so you can prioritize your debt.
Pay on time
If you’ve struggled with timely bill payments in the past, make it your goal this year to always pay on time. Set up automatic payments if you can, or create recurring reminders on your calendar or in your phone. You’ll save money because you won’t be hit with late payment fees, and your credit will improve.
Check your credit regularly
The best way to know where you stand financially is to regularly check your credit report. You’re entitled to one free credit report from each of the three credit reporting bureaus every 12 months. Your report has information about your current credit account standing and payment history. It also includes any negative occurrences, like car repossessions or accounts in default. Check your report regularly to make sure the information is accurate and up to date.
Improve your credit score
If your credit score is on the lower end, set a goal to improve it this year. Pay any overdue bill payments, and make sure you make all payments on time moving forward. Keep credit usage below 30% of your available credit. This means you shouldn’t spend more than $300 on a card with a limit of $1,000.
Keep in mind that if you apply for new credit this year, whether it’s an auto loan or a credit card, the lender will most likely perform a hard inquiry, which could lower your score.
Become more financially literate
Are there certain aspects of your finances that you struggle to understand? Take the time this year to learn more. Whether you want to do research into different ways to invest your money, or you want to have a better understanding of how interest accrues on your loans, having a solid understanding paves the way for healthier financial wellbeing.