Financial New Year's Resolutions and How to Fulfill Them
Written by Karen Bennett
2022 is here and that means it’s time to think about resolutions for the coming year. With the cost of goods and services rising, financial resolutions are foremost in the minds of many consumers.
With the right plan in place, you can stick to your financial resolutions and end the coming year in a better place than when you started it.
Here are 11 practical financial resolutions to commit to, along with expert tips on how to keep them.
1. Refinance your mortgage and/or your student loans
Mortgage rates have been at historic lows in recent months, so it may be the right time to refinance to lower your monthly payments, if you haven’t done so already.
As for student loan refinancing, federal student loans are in forbearance through January 2022, meaning you’ll need to start making payments again soon. Whether you have a federal student loan or a private one, consider refinancing the loan to lock in lower rates.
2. Pay down credit card debt
A recent study found 75 percent of adults carry a credit card balance from month to month. Among those who carry a balance, the average amount is $5,315.
If you have credit card debt, consider making it a goal to pay it off. There are several approaches you can take, but two common strategies are paying off your highest debt first (the debt avalanche method) and paying off your smallest amount of debt first (the debt snowball method).
If you’re struggling with making payments, consider credit counseling, a low-interest balance transfer, a personal loan or even debt settlement.
3. Can’t stick to a budget? Create a spending plan instead
If you have had trouble sticking with a budget, consider ditching the traditional budgeting method and create a spending plan instead.
A spending plan allows you to choose what you spend your money on instead of restricting yourself on what you can’t spend. Start by determining your monthly income and then decide what spending categories are most important to you.
As a rule of thumb, start with necessary expenses that include items such as housing, utilities, groceries and savings. After identifying how much you need for those categories, create others your remaining funds can go toward, such as entertainment and travel.
Money management apps are good tools for keeping track of where your money is going. Some banking apps offer similar tools.
The end result is the same as budgeting, minus the restrictive rules — making it a good strategy for those who don’t like being told what they cannot do.
4. Automate your savings
One of the easiest ways to build savings is by automating contributions, which alleviates having to think about how much money to set aside each month.
Many employers allow employees to divide their paychecks so that different amounts go into different accounts. Another option is to set up automatic transfers between bank accounts. Regardless of which option you choose, make it a priority to have your savings automated.
5. Start an emergency fund
A recent Bankrate survey found that more than half of Americans have less than three months of expenses saved in an emergency fund. But an emergency fund is an important financial tool that can help deal with unexpected expenses, such as home or car repairs.
The new year is as good a time as any to start (or grow) your emergency fund. In general, experts recommend saving three to six months of living expenses. Start by opening a separate and dedicated high-yield savings account. After that, consider these four tips:
- Evaluate your spending and look for areas where you can save.
- Set a savings goal.
- Set up automatic contributions.
- Try to increase your contributions over time.
6. Boost your retirement savings
Saving for retirement is one of the most important aspects of a sound financial plan.
Use [the new year] to boost or maximize contributions to 401(k)s or HSAs, plot out holistic retirement goals (e.g., Where will I live? Will I work? How much to budget for travel?) and, no matter your age or life stage, take meaningful steps to boost your financial wellness.
There are a few ways you can boost your retirement savings. For one, if your employer offers a 401(k) match, be sure you’re contributing enough to get the full match since it’s essentially free money. Another thing to consider is looking at where your money is being invested. Many experts recommend investing in a diverse portfolio of assets to reduce your risk but still achieve attractive returns.
Finally, it’s important to remember that the only way you get the market’s long-term average return of 10 percent is by holding through all the tough times.
7. Invest more
Don’t limit your investing to only making tax-advantaged retirement contributions.
If you already have an emergency savings account, consider setting up an investment account for goals with specific time horizons, like early retirement or saving for a house.
Some of the biggest perks of investing outside of your retirement account include:
- No limit to what you can save.
- Tax deferral benefits on unrealized gains (stocks you don’t sell).
- Immediate access to the cash without penalties or other restrictions.
If you’re just getting started, consider looking into a robo-advisor, which will do the investing for you after taking your risk tolerance and ideal earnings into consideration.
8. Improve your credit score
A good credit score varies depending on the scoring system. For example, FICO considers a good score to be 670 to 739, while the VantageScore scale considers 661 through 781 to be good.
Either way, your credit score plays a critical role in determining whether you get access to financing and other financial services you need. Your credit score can determine how much interest is paid on a loan, for example, and in some states credit scores are a factor in setting car insurance rates.
Consumers can get a free credit report every year from each of the three major credit reporting companies, as guaranteed by the Fair Credit Reporting Act. Some credit card issuers and other lenders also let their customers know their credit scores for free. Alternately, you can choose to purchase your score from one of the three credit bureaus.
To increase your credit score, consider these four tips:
- Pay all bills on time and in full.
- Lower your credit utilization ratio.
- Take advantage of score-boosting programs, like Experian Boost.
- Don’t apply for new accounts too often.
9. Cook more meals at home
Put more money back into your wallet by cutting back on restaurant food. Eating at home can be fun (and easy) with meal subscription services, which give you the option of picking new recipes each week and deliver the ingredients straight to your door.
You can save even more money by cooking from scratch. Find recipes online or ask friends and relatives for their tried-and-true ones. After a tryout, calculate your savings and consider putting the extra money toward paying down debt or building up your emergency fund.
10. Update your beneficiaries
It’s a good idea to revisit your beneficiary designations soon after you’ve experienced any life-changing situation.
Also, check your retirement and bank accounts, insurance policies and other financial accounts to make sure your beneficiary designations are up to date.
Adding a beneficiary to your accounts is critical to ensure your assets go to the person you want to have them. Beneficiary designations trump wills so be sure your will and any account or policy, such as life insurance, are aligned in their directives.
11. Look for ways to boost your income
Sometimes, it’s less about savings and cutting back and more about increasing your income.
There are many ways to increase your revenue streams. Freelance work, for example, is optimal for those who have a specific skill to offer. But there are also less technical side hustles, like dog walking, to consider. Additionally, if you have some savings in hand, consider investing in dividend stocks or real estate investment trusts.
By finding different ways to increase your revenue streams, you aren’t entirely dependent on one income source. Not only can that strategy help you make more money, increase your savings and reach your goals, it can also provide some protection if you lose your primary job.
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