The new year is a time when many of us make money resolutions and set goals for the upcoming year. The more concrete the goal, the more likely you are stick to it and see it through. Financial goals are especially relevant for the new year because many components of our finances, such as earning income or paying taxes, already follow an annual schedule. There are also specific, achievable steps you can take that can have a significant impact on your finances for the year. It’s never too late to review your finances and get a handle on your financial future.
[See: 10 Financial New Year’s Resolutions.]
Reduce debt. One of the most important things you can do is to get a handle on repaying your debt. Getting a complete picture of how much you owe is the first step to lowering your debt. Make a list of all your debts. This can include credit cards, student loans and car payments. Once you have a list of all your debt, you can choose a method to pay it off. You can pick the “snowball method,” where you pay the minimum amount on all your accounts and pay extra to the account with the smallest balance until it is paid off, then move on to the next one. Or you may choose the “avalanche method,” where you also pay the minimum amount on all your accounts and pay extra to the account with the highest interest rate until it is paid off, then you move on to the next highest interest account. Find the method that works best for you and stick to it.
Credit cards usually have higher interest rates than other debt, so if you have to keep a balance on your credit cards, consider taking advantage of a zero percent introductory balance-transfer offer. This will allow you to transfer the balances from one or more cards to a new credit card, and for a specific period, you can pay down your balance without having to pay interest. These offers can be for 12 months or longer. Make sure you have a plan to pay off the balance before the introductory offer ends to avoid paying interest.
[See: What to Do If You’ve Fallen (Way) Behind on Your Credit Card Payments.]
Build an emergency fund. Aside from reducing debt, having an emergency fund is one of the most important financial steps you can take. An emergency fund protects you from worrying about unexpected expenses, from medical bills or major car repairs to losing your job. The fund should cover three to four months of your living expenses and, if possible, stay in a separate savings account. If you already have a fund, look at your expenses for the previous year and make sure you have the right amount set aside.
If you need to start an emergency fund, examine your expenses from last year to get an idea of your monthly living expenses. Set up a separate savings account and deposit as much as you can each month, working toward having at least three months’ worth of expenses in the account. Remember that this account is for emergencies, so even after you meet your goal, continue to add to the account when you can to make sure you are covered for the unexpected.
Automate. Online banking and apps make it easy to automate your finances. Setting up automatic bill pay for your regular expenses is a great way to avoid late fees and keep your accounts in good order. If you are working to pay down debt or build an emergency fund, you can set a certain amount of your paycheck each month to automatically be deposited into a separate account that you use for that purpose. You can also use the apps for your credit cards to set balance notifications so you can control your spending.
Review your accounts. The new year is a great time to review your accounts and decide whether it is time for a change. Does your bank offer all the benefits and convenience that you would like? Are you setting aside enough for your retirement, and are the funds still appropriate for your needs? Review your auto, home and health insurance to see whether you still have the best coverage. Have you experienced major life changes that would require a change to your will? If you have any credit cards with annual fees, make sure you still use them and that you wouldn’t be better off closing them.
[See: 8 Big Budgeting Blunders — and How to Fix Them.]
Start or update your budget. Looking at your previous year’s finances gives you a great picture of your financial health. Knowing exactly how much you earn, how much you spend and how much you owe is the only way you can make a financial plan for the future. If you already have a budget, make any changes to adjust for higher expenses or new savings goals.
It can be as simple as listing all your monthly bills and comparing them to your monthly income. If you make more than you spend, that is the amount you can apply toward lowering your debt, building an emergency fund or setting up a savings goal for a vacation or major purchase. If your bills add up to more than your income, you now know you should lower your spending or find additional income.
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Consider Doing Some Financial Housecleaning in the New Year originally appeared on usnews.com
