By Ben Luthi
Ben Luthi has been a freelance writer since 2013, covering all things money and travel. His work has appeared in many major publications and financial websites, including U.S. News & World Report, The New York Times, Fox Business, Experian, FICO and more. Ben lives in Utah with his two kids, and loves spending his free time traveling, hiking and talking about credit cards.
As you gear up for a new year, it’s natural to think about the past 12 months and make plans for the next 12. Among the top New Year’s resolutions people set every year is to improve their finances.
But setting a goal to make progress may not be enough. If improving your financial situation is a top priority for you, here are 10 resolutions that can help you make it happen.
1. Reevaluate Your Current Goals
If you already have financial goals in place, take a moment to assess how you’re doing with them. If you’re on track with most or even all of them, consider the next steps you can take to continue that success — it may even be worth kicking things up a notch to challenge yourself.
If you’re falling short due to a lack of motivation or because you set your sights too high, consider making some adjustments to improve your chances of success. In many cases, though, circumstances outside of your control may make accomplishing your goals challenging.
In this situation, it’s essential to recognize what you can and can’t control and focus on doing the things within your power to improve your odds of getting there.
2. Create a Budget
If you don’t already have a budgeting strategy, take some time to make one. Start by taking your income and expenses over the last three months and breaking down your costs into different categories. Setting a budget will give you an idea of where your money is going.
Then, take some time to set a budget for each category, which you can use to guide your spending in the coming months. Some numbers may change from month to month, but many categories won’t change much.
A budget is crucial because it gives you more control over your money. Budgets can help you plan exactly how you want to prioritize your financial goals.
3. Save an Emergency Fund
If you’re not careful, unexpected expenses can completely derail your financial plan. Repairs to your home or vehicle, emergency medical bills, and unemployment can all take a serious toll on your mental, emotional, and financial well-being.
Take some time to choose the right savings account and work toward an emergency fund. A safety net of savings can help you weather the storm of surprise expenses, or at least reduce its impact on you and your loved ones.
Your capacity to save depends on your income and other expenses, but even a little stocked away every month can make a difference when you experience a rainy day.
4. Check Your Credit
Your credit score is an important indicator of your credit history’s health, which impacts your overall financial wellness. If you have poor or fair credit, you could end up paying for it in the form of higher interest rates, denial of credit, and even higher auto and homeowner’s insurance premiums.
Once per year, you can request copies of your credit report from the three credit bureaus – Equifax®, TransUnion® and Experian® – through AnnualCreditReport.com. If you need to improve your credit score, your credit report will show you which areas you can address to achieve your goal.
Improvement opportunities can include things like catching up on your payments, paying down credit card balances, avoiding new credit unless absolutely necessary, disputing incorrect information, and more. Click here to learn how your credit score is calculated so you can make a plan for the New Year.
5. Refinance Your Loans
If your credit has improved or market interest rates have dropped recently, you may be able to save money on certain debts by refinancing them. In 2020, for instance, mortgage rates hit several record lows, causing a staggering 105% increase in home refinancing demand.
If you have a mortgage or auto loan, shop around and see if you might be able to take advantage of lower interest rates. Also, consider using a debt consolidation loan or balance transfer credit card to help you pay down credit cards at a lower rate.
6. Pay Down High-Interest Debt
Dealing with debt can be stressful, but high-interest debt like credit cards, personal loans, and sometimes even student loans can be financially crippling. Write out all of your debts and look for opportunities to reallocate some of your spending to pay down the balances with the highest interest rates faster.
Paying off debt can take months or even years, but the sooner you start focusing on it, the more money you’ll save in the long run. Also, paying off debt frees up more cash flow each month to use for other important financial goals.
7. Up Your Retirement Savings
According to investment firm Fidelity, you should aim to save at least 15% of your gross income toward retirement. Check your contributions over the last year and divide the total by your annual gross income. If you’re not where you need to be, consider upping your contributions, even if you can only afford a little bit.
As part of this resolution, if you have a tax-advantaged account like a 401(k) through your employer and it offers a matching contribution, make sure you’re getting the full match — that’s essentially free money and can be counted toward your 15% goal.
8. Review Your Insurance Policies
Insurance feels like a necessary evil, but it’s a crucial way to manage your risks. In particular, life and disability insurance are vital to protecting your loved ones (and even you in the case of a disability) if you die or become disabled. Consider working with a licensed insurance agent or financial advisor to determine whether you have the proper coverage.
If you can choose from multiple health insurance plans, compare them to determine which one is best for you based on your previous medical bills.
Finally, if you have car insurance, look through your policy to ensure you have the right amount of coverage. If you’re too low on liability insurance, for instance, causing an accident could result in a lawsuit if your policy doesn’t cover the full amount of the other person’s loss. At the same time, ditching optional coverage you don’t need could save you money each month.
9. Look for Tax Savings Opportunities
Depending on your situation, you may be able to take advantage of some types of tax savings. For example, if you have a high-deductible health plan, you may be able to contribute to a Health Savings Account, which lets you contribute money to use on health care expenses on a tax-free basis. Alternatively, if your employer offers a Flexible Spending Account, you can get a similar tax benefit.
Another way to reduce your tax liability is to max out a traditional individual retirement account (IRA). People who meet income requirements can deduct contributions up to a certain threshold every year, removing that from your taxable income.
There are plenty of other ways you can make your financial plan more tax-efficient. If you need help, consider working with a tax professional who can provide personalized guidance and advice.
10. Plan to Increase Your Income
Budgeting and setting goals can make a big difference in your financial plan, but they can only do so much when you’re working with a fixed income. Increasing your income will give you more opportunities to save, pay off debt, and work toward other goals.
Some options for increasing your income include asking for a pay raise, taking overtime hours, finding a new job, starting a side business, and more. There’s no best path toward a higher income for everyone, so consider all of your options to find the one that works best for you.
The Bottom Line
Creating financial goals won’t guarantee that you’ll improve your financial situation in the coming year. But developing defined and actionable resolutions can help you get on the right track toward achieving your goals. Consider these resolutions as a starting point to do what you need to do to succeed.
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Information contained in this blog is for educational and informational purposes only. Nothing contained in this blog should be construed as legal or tax advice. An attorney or tax advisor should be consulted for advice on specific issues.
