A new year means a new start, and not just when it comes to your health or your relationships.
Money is a big part of your overall happiness and success, and the start of another year is a great opportunity to assess your financial situation and resolve to make some changes for the better.
Here are seven New Year’s resolutions that can help you achieve better financial health.
1. Clarify Your Goals
It’s hard to stay on track if you’re not clear about the road ahead. Most of want to “have more money” or “be better with our spending,” but if you aren’t specific about what that looks like in action, you’ll have a harder time making it happen.
Sit down with a pen and paper and list your exact goals for your money this year. Let’s assume, for example, that you want to “save more.” Precisely how much do you want to put aside each month? Do you want to cut $100 from your monthly budget, or $1,000?
Furthermore, how do you define “saving”? Are you referring to setting aside money in a savings account that you might spend six months later on home maintenance or a car repair? Or are you referring to setting aside money for long-term goals like retirement?
Take some time to clarify the “why” behind your goals. You may want to save more so that you can retire comfortably or send your children to college. You may want to reduce your budget so you can work less hours and spend more time with your family. Having a clear “why” helps you to stay motivated and stick with your goals … even if things get tough.
2. Revise Your Budget
Look over your budget and make sure it’s still working for you.
Over the past 12 months, have you regularly gone over-budget or under-budget in any of your categories, such as groceries or utilities? If you have a surplus, how would you like to allocate that money?
Reviewing your budget on a regular basis allows you to tweak your spending so that it’s always in line with your current circumstances and goals.
3. Save More
An emergency fund is a must-have to keep your budget on-track in spite of life’s unexpected occurrences. Keep 3-6 months’ income stored in reserves in case of an accident, illness, job loss or other crisis. If you’re behind on that goal, think of ways you can put more aside in the New Year — trimming your budget further, selling your unwanted stuff, etc.
You’ll also want to make sure you’re regularly putting aside money towards your short-term goals, like a family vacation, renovating your home, or savings for the next holiday season (which will come up faster than you might expect). Putting aside a little each month towards these goals puts less of a pinch on your wallet and helps you ensure you have enough when you need it.
Of course, you absolutely must be saving for retirement. To find out just how much you’ll need, start with an online service like Jemstep. Its “Retirement Dashboard” will show you how much money you’re on-track to being able to spend each year during retirement under multiple market scenarios. It will also give you specific asset allocation recommendations based on your age, risk tolerance, goals and other critical personal information.
4. Increase Your Retirement Contributions
Challenge yourself to put aside more in the coming year. Bumping up your monthly retirement contribution can result in big gains, thanks to the magic of compound interest. Increasing your contribution by only 1 or 2 percent will make a big impact on your final retirement fund total — and you’re not likely to “feel” an increase that small.
5. Review Your Insurance
Just like you need to review your budget regularly, you need to review your insurance to make sure you’re adequately covered.
Life circumstances change and companies introduce new policy features and incentives, so it’s worth the time to call up your insurance agent and review your current policies to see if any changes need to be made. Spend one afternoon each year reassessing your life insurance, automobile insurance and homeowner’s or renter’s insurance.
You may save yourself some money, but even if your monthly payments go up a little as a result of your review, you’ll be able to rest easy knowing you own the coverage you need.
6. Pay Off Your Debts
After you’re debt-free, you’ll be able to invest your money towards other goals such as retirement and college savings for your children. You’ll be earning returns rather than paying on interest charges.
Come up with an aggressive plan to pay down your balances this year. After establishing a small emergency fund and meeting your minimum obligations, throw all of your extra money each month at paying down the credit card that has the highest APR. Once it’s paid in full, move to the obligation with the next-highest interest rate. Keep repeating this until you’re debt-free. Meanwhile, refrain from making any additional purchases on credit.
7. Use That Raise Wisely
Did you receive a holiday bonus or raise this year? Resist the urge to blow it on something frivolous and apply it towards one of the above goals.
Add it to your retirement account. Use it to make a lump-sum payment on one of your credit cards. Contribute it to a college savings fund.
A sudden windfall can tempt the best of us into splurge purchases, but keep yourself in check and you can use those funds to boost your finances in the New Year — and the years to come.