A recent survey from the National Endowment for Financial Education found that nearly 8 in 10 Americans set a financial New Year’s resolution for 2019 with 97 percent reporting that saving money and dealing with debt are the biggest causes of financial stress in their lives.
Fortunately, if you set your goals early and you stick to the plan, bettering your financial situation can be easier than finding a treadmill at the gym this time of year.
Create a Budget
It’s been said that failing to plan is planning to fail. Your budget is an itemized list of your income and expenditures – and your roadmap to achieving your financial goals. The new year is a great time to create a budget or fine-tune your existing one to make sure you aren’t spending more money than you make.
There are apps available that will walk you through the process or you can opt to make an old-fashioned budget on a piece of paper. Either way, come face to face with your spending habits and see where you can cut back to save.
How to create a budget:
- Decide if you’d prefer a weekly, bi-weekly or monthly budget (depends on your pay period, spending habits and discipline).
- Calculate your after-tax income.
- List necessary expenses like your mortgage payment and car insurance and subtract those from the money you make (set goals for credit card payments and grocery spending too).
The remainder is how much money you can spend and save. Budgeting experts suggest saving as much as 20 percent of your yearly income but that is not always realistic. Regardless, determine an amount you are comfortable with saving and stick to it. You may also want to consider investment products like certificates of deposit, a financial product that often helps you save at a higher rate than a savings account.
Review Your Insurance Policies
Experts suggest reviewing your insurance policies at least once per year and after significant life changes like marriage, the birth of a child or the purchase of a new home. Depending on these changes, you could need more coverage to make sure your assets are adequately protected or less coverage, which could save you money.
For instance, perhaps the value of your car has dropped to the point that it is no longer cost effective to pay for full auto coverage; you could shave serious dollars off your premium by dropping collision coverage.
Maybe you are planning a kitchen remodel; if that’s the case, your homeowner’s insurance policy could need a makeover too. Talk to your insurance agent to make sure your limits are high enough and that you are protected in case someone is hurt on the job.
Ask your insurance agent about any discounts for which you qualify, and if you have an independent insurance agent – one who works with different insurance companies to find you the best policy – ask if there are other providers who could offer you a better rate.
Review Your Retirement Contributions
Your retirement savings are incredibly important no matter which stage of your professional life you are in and the new year is as good a time as any to see where you stand.
With pensions phasing out seemingly everywhere, it’s likely that your 401(k) is a big slice of your retirement pie and you should take time to make sure your slice is as large as possible.
Review how much of your pay you are investing into your retirement plan and take full advantage of any employer match program if you can afford it. You should also review how your 401(k) is invested and whether the strategies are in line with your age and risk tolerance. Utilize tools and resources provided by your plan provider and talk to a financial planner if you’d like additional advice. A financial planner can also help you diversify your retirement portfolio with stocks, bonds, cash and mutual funds to reduce risk and volatility.
For 2019, the Internal Revenue Service increased the maximum annual 401(k) contribution to $19,000 and $6,000 for individual retirement accounts. A maximum $6,000 401k catch-up contribution is also available to participants 50 and over.
To get a better handle on your retirement readiness, try the Department of Labor’s helpful Lifetime Income Calculator.
Improve Your Credit Score
The new year can also mark a new opportunity to pay down your credit card debts and improve your credit score.
There are many strategies for improving your credit, but they won’t work unless you make a conscious effort not to rack up even more debt. It can be difficult, but that’s where your budget comes in. Stick to it and make regular credit card payments – even several times a month when you have extra cash.
And while you may have already earmarked your tax refund for that new guitar or a vacation, it’s a better idea to pay down your credit card bills. Some experts suggest keeping your credit card balances under 30 percent of the total limit.
Other strategies for improving your credit include:
- Avoid closing credit card accounts (unless you don’t use them or there’s an annual fee).
- Don’t apply for several credit cards at once (these inquiries can temporarily alter your score).
- Ask for a credit limit increase (using less of your available credit helps your score).
- Look for errors on your credit reports (1 in 4 Americans has an error on their reports that can have a negative impact on their credit score, according to the Federal Trade Commission)
No Spend Days
One last strategy is to dedicate days, weekends, weeks or months to spending as little as possible. These “no spend days” are days when you skip your Starbucks, pack a lunch and opt for a movie at home instead of a night on the town.
Everyone’s financial situation is different, but with goals set and some discipline, you can make your financial New Year’s resolution stick. Now, about that gym membership…
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