A new year is coming once again, and what better way to prepare for it than to come up with a list of resolutions, including financial resolutions.
In this article:
- Analyze Your Previous Spending
- Plan Your Budget Accordingly
- Eliminate Debt
- Build an Emergency Fund
- Keep on Saving
- Keep Yourself and Those Important to You Covered
- Cut Down Unnecessary Expenses
- Stop Impulse-Buying
- Invest in Your Future
9 Financial Resolutions You Should Try For The New Year
1. Analyze Your Previous Spending
One of the first financial New Year’s resolutions you can make is to learn from your expenses from the previous year. This resolution should come before others, as it allows you to see where you could make improvements.
Try to gather your expenses in the past year in a single spreadsheet and categorize them accordingly. You will probably see areas where you can cut down for next year. Analyzing your previous expenses gives you good insight into your spending habits.
2. Plan Your Budget Accordingly
Preparing and following a budget does not mean that you have to live a meager lifestyle. In fact, in the long run, it gives you a headstart to a more comfortable retirement.
Following a budget means that you spend only within your means. You do not fall into debt traps and end up paying thousands in interest that you could have easily avoided.
Try to prepare a simple spreadsheet and outline your earnings, forecasted expenses, and the amount you plan to put into savings each month. Highlight any big purchases you plan on making and as they draw nearer, decide whether you really need them.
Come up with ambitious yet achievable goals when it comes to your finances. These goals should be tangible and measurable to keep you motivated when you reach certain milestones.
3. Eliminate Debt
After you analyze your spending habits and come up with a budget plan, getting out of debt should be your top priority for the coming year.
Whether it be credit card debt, car loans, student loans, or mortgages, it is important that you get rid of any type of debt as soon as possible. Studies show that Americans spend a huge portion of their income paying off debt. A large percentage of those monthly installments goes towards the interest component of the debt. The longer the debt stays, the higher the interest you end up paying.
Check your statements and see exactly how much interest you pay. The amount you could have saved will definitely surprise you.
Divert cash from your unnecessary expenses to making extra principal payments. This way, you pay less interest and eventually get out of debt faster.
4. Build an Emergency Fund
One of the most common reasons why people get buried in debt is that they fail to anticipate emergencies.
Unforeseen events such as illnesses or sudden expensive repairs often surprise people who do not know how to save. They end up having to suddenly cut down on a lot of expenses or worse, getting a loan with exorbitant rates just to solve the problem.
An emergency fund gives you a safety net in case of unexpected falls. It not only saves you from hassle and stress, but also from months of unnecessary debt.
Whenever you receive your paycheck, allocate a certain portion of it for your emergency fund. Ideally, your fund should be worth 6 months of your monthly income. Do your best to save up for this first before allocating your money to other things.
5. Keep on Saving
Once your emergency fund is ready, try to stick to your budget. If you could continue to save the amount you previously allocated for building your emergency fund, then great. If not, follow the 50-30-20 rule.
The rule states that you should spend 50% of your income on necessities like food and rent. 30% of your income should go towards wants while you then allocate 20% of your income for savings.
If you want to be more frugal, try switching your allocation for wants and savings. “Pay yourself first” by making sure that you remain secured for the future.
6. Keep Yourself and Those Important to You Covered
A lot of people make the mistake of viewing insurance as a scam. However, the right policies actually provide ample coverage for numerous unexpected expenses.
Review any changes especially when it comes to your Social Security and health care plans. Try to ensure that you have appropriate levels of coverage for life, health, property, and automobiles. Everyone in your family should have insurance coverage, especially for life and health.
If you can, you might even want to look into senior life insurance.
7. Cut Down Unnecessary Expenses
Again, cutting down on expenses does not necessarily mean that you live a miserable and scant lifestyle. It simply means eliminating unnecessary expenses and perhaps, living a more frugal life as well.
To do so, you’ll have to learn practical money skills. You can list down your expenses and see which ones are things you can do without.
Cutting down on unnecessary expenses means you prioritize to ensure you pay your bills on time. This helps you avoid paying more for late payment charges, fines, and other penalties.
Manage your finances and monitor your daily and monthly spending. Perhaps you can cancel the gym membership you barely use or switch to a cheaper cellular plan. Either way, if you see that an expense is not a “need,” you can do away with it.
8. Stop Impulse-Buying
A lot of people tend to buy things impulsively. This leads to cluttered space filled with objects that you might have only used once or twice.
Consider holding a garage sale or posting those items on websites such as eBay. This way, you can get rid of unwanted and unused stuff while earning money at the same time. You can use that money as additional funds for your savings.
When it comes to impulse-buying, however, prevention is better than cure. A simple technique to address this is the “30-day list.” With this method, you list down the things you see that you want to buy and wait it out. If you still want to buy them after 30 days, then go ahead. Most of the time, you will thank yourself for waiting because you did not waste money on a whimsical buy.
9. Invest in Your Future
Perhaps the best financial resolution you can make for the New Year is to invest in your retirement. Eventually, everyone’s goal is to retire comfortably and make the most of that retirement.
If you truly want to enjoy your retirement, then you should start investing now. Learn about stocks and bonds and later on, invest in them. Make sure that your investment portfolio is diverse as it can safeguard you from losses should one of your investments fare badly.
One of the easiest and most reliable ways to prepare for retirement is to open an individual retirement account (IRA). IRAs provide numerous tax advantages that allow you to save for retirement easier and more effectively. Ask a financial planner or an accountant to know what type of IRA best suits you.
Plan for your retirement and aim to grow your investments so that you are sure of a comfortable and secure future.
The common reason why most people fail with New Year’s resolutions—whether these are fitness-related or finance-related, etc.—is they start enthusiastically but fail to follow through with consistency. Few people truly take those resolutions seriously. With enough planning and grit, however, it is possible to succeed. Try to keep in mind some of the financial resolutions above and follow through. You will thank yourself for doing so.
Are there other financial resolutions you are planning to make this coming New Year? Share them with us in the comments section below!