January marks the time for resolutions to improve everything from our eating habits to fitness level. If you haven’t already added some financial New Year’s resolutions to the list, here are five suggestions. Taken individually or together, they can help put you in a better financial situation by the time you’re ready for 2023’s resolutions!
Automate Your Savings and Investment Contributions
If you have a 401(k), your contributions are probably deducted automatically—which is a great strategy to apply to your other accounts.
Your human resources provider may give you the ability to automatically route a portion of your paycheck to your savings account. If they don’t or if you’re self-employed, check with your bank to see if they’ll do the rerouting for you. The same goes for your investment accounts, like an IRA.
Why is automating helpful? It goes back to the adage “Out of sight, out of mind.” By removing the money you want to save from your spendable balance, you’re less likely to dip into it. This allows your savings and investment accounts to grow.
Build an Emergency Fund
What happens if your roof needs replacing? Or if your job gets downsized? Your emergency fund will come to the rescue.
We recommend that everyone has enough to cover three months of expenses in their emergency fund—but more is better. Strive for six months’ worth of expenses. If your income is variable or you’re in retirement, a year’s worth may be best.
Keep your emergency fund liquid. You may not get a great interest rate in a savings account, but that’s a trade-off for having access to the money when you need it.
Bonus tip: Go back to the first recommendation in this list and automate your contributions to your emergency fund.
Keep Your Credit in Tip-Top Shape
You may not feel like you’ll need to draw on your credit anytime soon, but sometimes life has other ideas for us. For instance, your car may end up needing repairs so expensive that it would be better to get a new car. Having an excellent credit score will enable you to get a better interest rate on any loan you take out.
Start by ordering your free credit reports—each of the agencies (Equifax, TransUnion, and Experian) must offer you a free report each year through AnnualCreditReport.com.
We recommend you order one free credit report every four months. This allows you to check for potential fraud or identity theft all year long. (Speaking of fraud and identity theft, if you’re not taking out new credit cards or other debt, you might consider freezing your credit.) It also gives you the opportunity to find mistakes and correct them before you need to use your credit.
Your reports generally won’t provide your credit score. Nowadays, though, a lot of companies, such as your mortgage or auto loan company, give a credit score on the monthly statement. Some online account aggregators like Mint.com also let you view your credit score for free.
The credit agencies may offer you access to your credit score—just make sure you’re not purchasing a credit-monitoring service (unless, of course, you want to buy the service). You can also buy your scores from myFico.com.
Speaking of credit …
Pay Off Your Credit Card Bill Each Month
You’re not doing your personal finances any favors by letting credit card balances roll over. Make it a New Year’s resolution to pay off your credit card balance in full each month. And if the balance is too high, make 2022 the year you get your credit card debt down to zero so that you can pay off the balance monthly.
There’s no point in paying more for your purchases, which is what you’re doing when you pay interest. And credit cards have some of the highest interest rates in the debt industry.
Once you have your credit cards under control, investigate paying off other debt, such as your car loan. Being debt-free (or close to it) is freeing. It expands your purchasing and savings power and gives you more peace of mind that you can handle your finances through thick and thin.
Work with a Financial Advisor
Our final tip applies especially if your finances have become complicated or if you’re nearing a significant life transition, such as retirement. A fiduciary financial advisor will help you simplify the complexity and navigate the change with a detailed financial plan. They’ll incorporate all areas of your money, such as taxes, investments, and insurance needs, into the plan, which they’ll help you implement.
Our Plantation, Florida wealth management firm creates financial plans to help our clients achieve their goals and feel great about their journey. Schedule a complimentary consultation with one of our fee-only financial planners to discuss your personal situation.
This material was prepared by Kaleido Inc. from information derived from sources believed to be accurate. This information should not be construed as investment, tax or legal advice.