At the beginning of the year people make resolutions involving health, work, or family, but getting your financial house in order can make a significant impact on your quality of life. Here are six resolutions that can, hopefully, help you stay committed to improving your financial wellness throughout the new year.
1.Automate, Automate, Automate
One of the easiest ways to build savings is by automating contributions, as it avoids 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 accounts. One account could be for everyday living expenses, a second one for discretionary spending (vacations, eating out, gifts, etc.), and a third for savings.
Don’t forget about your expenses too! Most bills can be paid automatically to avoid missing any payments. This doesn’t mean you can just set it and forget it, though. Review your expenses regularly to make sure nothing looks off.
2.Boost Your Retirement Savings
Saving for retirement is one of the most important aspects of a sound financial plan. In 2022 you can contribute up to $6,000 in an IRA ($7,000 if age 50 or older) and up to $20,500 in a 401(k) ($27,000 if age 50 or older). If your employer offers a match, make sure you’re contributing enough to get the full match because… it’s free money! Also, rather than picking a specific dollar amount, set your retirement contributions as a percentage of your paycheck. This will ensure contributions automatically increase the next time you receive a salary increase.
3.Check Your Credit Score and Report
It’s important to regularly check your credit report so you can spot fraud early and ensure the correct information is reported to the credit bureaus — Experian, Equifax, and TransUnion. During the COVID-19 pandemic, you can access free weekly online credit reports from each of the main credit bureaus at annualcreditreport.com. With that being said, no one can track their credit around the clock. And that’s where 24/7 credit monitoring comes in. Signing up for credit monitoring will enable you to receive an instant notification anytime there is an important change to your credit report. It reduces lag time when spotting issues and gives you the peace of mind that comes with knowing you won’t miss anything.
There are numerous resources that allow you to check your credit score for free. You can receive an updated credit score every month and see the factors that influence your score. Some sites may even have a simulator that shows you the potential effect of certain actions, like missing a payment or paying off debt. Checking your credit score doesn’t hurt your credit, and even if you’re not applying for credit, it’s smart to get into the habit of checking it regularly. Here are some free credit score resources that you can access, whether you’re a cardholder or not:
- CreditWise from Capital One: Free VantageScore from TransUnion
- Chase Credit Journey: Free VantageScore from TransUnion
- Discover Credit Scorecard: Free FICO Score from Experian
4.Manage Your Debt
Debt, depending on how you use it, is neither inherently good nor bad—it’s simply a tool. For most people, some level of debt is a practical necessity, especially to purchase an expensive asset such as a home. However, problems arise when debt becomes more of a burden than a tool. The cost of consumer debt adds up quickly if you carry a balance.
With inflation returning to the U.S. after a multi-decade absence, interest rates may finally start creeping higher. While mortgage rates have started creeping higher over the past year, they are still at exceptionally low levels. Mortgage paperwork can be a hassle, but don’t let that dissuade you from some major savings by looking into refinancing. Don’t forget about any other outstanding debt like credit cards, student loans or car payments. Lenders can offer debt consolidation loans that let you combine other bills with your home loan into a single payment.
5.Boost Your Income
While we tend to focus on spending less and saving more, one way to become more financially secure is to focus on the other side of the equation: how much we earn. One way to boost your income would be to ask for a raise from your current employer. In the current environment employers should be more willing to negotiate, it’s much easier to keep a current employee than hire and train a new one. Just make sure to do your research, both online and by talking to other people in your line of work to determine if your request is reasonable in the current job market.
Your other option is to look for another job or consider changing careers. Switching careers is no easy task. It may require additional training and costs to boost your skills, so it’s key to make sure the increase in salary and benefits outweighs the upfront costs. The benefits of finding a higher-paying job could end up outweighing changes we make to our spending habits.
6.Treat Yourself Every Once in a While
There are plenty of articles and self-help experts that tell us we could all be millionaires if we just stopped buying coffee, eating out or paying for a gym membership. While there’s merit to being mindful about your spending since expenses like these can add up over time, it’s often the mistakes around the big financial decisions that can have the most significant long-term impact. In 2020, housing costs (like rent and utilities) represented about 35% of the average person’s budget. In short, where you decide to live can have a much bigger impact on your financial well-being than your morning coffee habit.
Whether you are trying to pay off debt or finally getting around to building your emergency fund, always saving with no indulgences can be demoralizing. You can give yourself a special splurge every time you complete one of the resolutions above. Consider a nice dinner out or great seats to a concert you have wanted to attend. Little splurges along the way will keep you motivated and heading in the right direction.