A new year is upon us, and we all know what that means: time for resolutions. Maybe you’re eyeing ways to improve your health, relationships, community or environment. But don’t neglect adding some financial goals to the list – after all, improving financial wellness can have a positive ripple effect on all those other areas.
To help you get started, here are five of our top resolutions for the coming year:
1. Pay down debt
If you’re facing a mountain of debt – whether from credit cards, student loans, auto loans or a mortgage – you’ll need a solid, step-by-step plan for conquering that mountain.
Your first move? Figure out how much you owe and what interest rates you’re paying. Set up a spreadsheet to get a complete picture, and look into whether any debt can be consolidated and refinanced at lower rates.
Also, think about how you want to tackle your debt. Perhaps pay off smaller debts first for some visible progress and an ego boost. Or, target high-interest debt to bring down the amount you’re throwing away in interest each month.
An added bonus: by paying down debt, you can boost your credit score and set yourself up for better lending terms in the future.
2. Save more
Get specific when making this resolution. Set a goal of putting aside a certain dollar amount each month or a percentage of your gross income. By attaching a number to your goal, it’s easier to track progress and determine success.
Once you have a savings goal in mind, automate the habit. With every paycheck deposited into your checking account, set up an automatic transfer to a savings account. You’ll remove the temptation to spend the extra cash, but you can still access it in a pinch.
3. Invest more
Investing is a way to put your money to work. If a workplace retirement plan like a 401(k) is available, start investing or up your contributions. Once set up, the contributions are automatic and made with pre-tax dollars. So, not only are you preparing for non-working years, but you’re reducing your taxable income. And if your employer offers a match, that’s free money.
Other investments to consider include individual retirement accounts (IRAs) — traditional and Roth — for retirement planning, as well as 529 Plans if you’re saving for a dependent’s college education. You can also set up investment accounts outside of these tax-advantaged options.
4. Fund an emergency fund
No one wants to dip into savings set aside for an epic vacation to pay for emergency car repairs. But without a dedicated fund to draw from, raiding savings or maxing out credit cards — and going further into debt — may seem like the only viable options.
Although you often hear that an emergency fund should have six months’ worth of expenses (think rent, utilities, insurance, food, gas, etc.), plan to start slowly. Even $1,000 or $500 can help you deal with many emergencies, and to reach $500 by year’s end, you need to set aside only $42 a month.
Finally, it’s a new year, so start with a clean slate and be deliberate about how you save and spend. Create a budget, laying out your monthly income and expenses. You may find that certain expenses — such as subscription services or memberships — can be cut without too much hassle. Determine how much you need, and then see what’s left for savings and wants.
Once you have a budget outlined, track your spending to be more mindful of where your money goes and to think twice about impulse buys.
Whichever financial resolutions you choose to add to your list, remember that making steady progress and forming good habits are the goals. With some discipline, this can be just one of many financially awesome years to come.