Resolutions are often made on New Year’s Day and forgotten (or disavowed) a few weeks later. Although 2017 may not be the year you go from thousands in debt to millions in savings, resolutions to improve your financial health are worth continued effort.
According to a recent NerdWallet survey, 83 percent of Americans set a financial resolution for the new year. Here’s a look at the five most popular resolutions — setting a monthly budget, building an emergency fund, saving for retirement, paying off credit card debt and paying off other debt — and how to make progress on them in 2017.
[See: 10 Financial New Year’s Resolutions.]
Resolution No. 1: Setting a Monthly Budget
The top two financial resolutions Americans set for the new year are budgeting and building an emergency fund, each of which was cited by 34 percent of respondents. These are excellent resolutions because while building long-term wealth is great, dealing with the financial here and now is critical as well.
Setting a monthly budget starts with these steps:
1. Figure out how much you make. The number that counts each month isn’t your annual salary divided by 12, or your hourly wage multiplied by the number of hours you work. It’s what you take home after taxes and other paycheck deductions because that’s what you have available to spend.
2. Figure out how much you spend. Use a spending tracking app or pen and paper to log every dollar spent over three months. Your monthly average in each category (housing, utilities, food, entertainment, et cetera) is your budget starting point.
3. Figure out where you can cut back. Fixed expenses are the costs that stay the same each month (rent or mortgage, for example), while variable expenses are costs that can change from month to month (such as groceries). Generally, you have more control over variable expenses. If you want to cut costs, try lowering your budgeted amounts for groceries, dining out, entertainment and subscriptions.
[See: 8 Big Budgeting Blunders — and How to Fix Them.]
4. Adjust as needed. A budget isn’t static, so it’s unlikely that you’ll spend the same amount from year to year or even month to month. As your life changes, so should your budget, so adjust accordingly.
Ultimately, you need to spend less money than you make. Use extra money to pay off debt or pad your emergency savings fund.
Resolution No. 2: Building or Adding to Emergency Savings
Ideally, your emergency fund should have enough money to cover expenses for three to six months. Even if that goal seems out of reach, start wherever you can. Here are a few ways to begin:
— Set a monthly savings goal. Choose a percentage of your income or a flat amount, whichever works for you, to transfer to savings each month. It doesn’t matter at this point how much you can transfer. Just get in the habit of setting aside something with each paycheck.
— Save windfalls. Over the course of a year, you may get some windfalls, or money in addition to your normal paycheck. These may include tax refunds, rebates, cash gifts, bonuses and so on. Build up your emergency fund more quickly by saving all or part of these unexpected chunks of money.
[See: Spend a Windfall Wisely.]
— Earn more, spend less. The larger the gap between your income and expenses, the more you can save. Earn extra money by making the case for a raise, getting a second job or freelancing on the side. Lower expenses by evaluating your spending and cutting back where feasible.
Building a robust emergency fund will take some time, but putting away small amounts of money consistently will add up. The important thing is to start now.
Resolution No. 3: Saving for Retirement
Almost three in 10 Americans set a resolution to save for retirement in the new year. Whether retirement is right around the corner or 40 years away, saving today will benefit your future self.
The retirement accounts available to you depend on your employment and income. If you have a 401(k) or similar plan from your employer, you should be contributing at least enough to get the full match offered by your employer — that’s free money. If you have an IRA, contribute as much as you can, up to the deductible limit ($5,500 for 2017, $6,500 if you’re over 50). If you have both, start by getting the full match in your 401(k). Then you can go up to the maximum in your IRA. Anything after that should go in your 401(k).
Resolution No. 4: Paying Off Credit Card Debt
More than one-quarter of Americans resolved to pay off some or all of their credit card debt in 2017. Keeping this resolution can save a lot of money: The average household that carries credit card debt from month to month has a balance of $6,885, which costs more than $1,300 in interest each year, according to a NerdWallet study.
If you want to get out of debt, you’ll have to pay more than the minimum amount due. Try paying double the minimum or rounding it up to the nearest $100. If you have the means, divide your credit card balance by the number of months remaining in the year (12 in January, 11 in February, 10 in March, et cetera.) and then pay that amount each month. You’ll be completely out of credit card debt before the ball drops on 2018.
Resolution No. 5: Paying Off Non-Credit Card Debt
Finally, almost a quarter of Americans want to pay off some or all of their non-credit card debt, such as student and auto loans. The same strategies for saving money and paying off credit card debt will work here: widening the gap between income and expenses and using the excess cash to cut debt, using windfalls to reduce debt and rounding up or doubling loan payments.
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How to Keep Your Financial Resolution for 2017 originally appeared on usnews.com
