With the cookies, pie and Christmas ham now behind us, resolution season has arrived. Many of our pledges for self-improvement will inevitably center on our waistlines, in large part to work off the lingering effects of our holiday revelry. But what might not be so apparent is the need to focus on financial fitness.
For one thing, the holiday season left us with more than just extra pounds to shed. We racked up roughly $50 billion in credit card debt during the fourth quarter of 2015, pushing the year-end total to $68.5 billion, according to CardHub projections. What’s more, money is America’s top source of stress, according to the American Psychological Association. Paying your wallet some special attention is therefore the ticket to a more peaceful 2016.
With that in mind, here are six of the best financial New Year’s resolutions that you can make in the coming days to benefit your finances in the coming months.
1. Check your credit report. Most of us know that the information on our credit reports is important, but between busyness and forgetfulness, it can be difficult to stay on top of what’s happening in these files. In fact, 1 in 5 people have a mistake on one of their credit reports, according to the Federal Trade Commission.
So don’t ignore your reports. Request a free copy from AnnualCreditReport.com, and make sure there aren’t any errors that could lower your credit score or unfamiliar accounts that could be a sign someone has opened credit in your name. If you see something wrong, take action and alert the credit bureaus to get the issue fixed.
2. Add three months of take-home pay to an emergency fund. If you already have 12 months’ take-home pay stashed away for a rainy day, you can skip this particular resolution. Most people do not fit that description, however, which means this step is essential.
Setting aside a bit of each paycheck for unexpected expenses should be a higher priority than concentrating on getting out of debt. After all, you don’t want to meet that objective only to get hit with another financial emergency without the proper safety net. So set a goal to put three months’ pay aside over the course of 2016, and divide that amount into monthly and weekly savings increments. This will make it clear what types of luxury expenses you will need to cut from your budget.
3. Use the Island Approach to escape credit card debt. The average household with credit card debt will owe roughly $7,813 at the end of 2015, according to CardHub projections, and interest rates are rising. That means our expensive outstanding balances are becoming more costly, and the likelihood that we will miss payments and suffer serious credit score damage is increasing. This is an issue we must address now.
The best way to pay down credit card debt is to use something called the Island Approach. Basically, you designate one credit card for everyday spending and one credit card for reducing the cost of your existing debt. Removing your everyday spending from your debt will reduce your average daily balance, thereby reducing your interest charges. And given that everyday purchases should be affordable without financing, interest charges cropping up on your everyday card will be a sign to cut back. This strategy also enables you to save money if you get a rewards card for everyday spending and 0 percent balance transfer credit card for debt reduction, rather than using a single card.
4. Change your email password every three months. This might at first strike you as strange, but the security of your primary email address is paramount at a time when identity theft and fraud are serious concerns, and we use our email to reset the passwords of our financial accounts. This isn’t to say that you should ignore other account passwords; just that you should have a different, strong password for your email that you change on a regular basis. It should be six to eight characters long and include at least one number, special character — such as @, $ or # — and capital letter.
You should also enable two-factor authentication. This involves linking your cellphone number to your account to receive a special code that must be entered along with your password whenever you sign in, or when a request to do so is made from a new device.
5. File your tax return by February. Getting your taxes done early will get the task behind you, which could alleviate some stress, but it will also lessen your chances of having your refund stolen. With tax refund fraud, criminals submit a return in someone else’s name before the actual individual does so, which means your goal should be to beat them to the punch. Starting the process early will also help you avoid the administrative and mathematical mistakes common among last-minute filers.
6. Automate to save time and reduce stress. Time is the most valuable commodity that we have. Forgetfulness is also a trait many of us possess. Fortunately, there are a variety of tools and services that can help maximize the former and counteract the latter, all while still doing right by our wallets. For example, an act as simple as setting up automatic monthly payments from a bank account to your credit card will save you money on interest. It will also help you avoid the credit score damage that accompanies late payments and forget about the hassle of remembering due dates. Automatic contributions to a retirement account or education fund would help your future financial security as well.
No matter what resolutions you make this year, view them not as a chore or a challenge, but as an opportunity. Make a plan, stick to it and enjoy the benefits that your efforts yield. Happy New Year!
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6 Money Resolutions You Should Make in 2016 originally appeared on usnews.com
