7 Financial New Year's Resolutions You Need in 2020
We’re coming up on not just a new year, but a new decade. That means it’s a great time to start fresh and make the changes you really want to see in your life.
Each year, millions of people make New Year’s resolutions. And money goals top the list for most popular New Year’s resolutions, along with eating healthy and working out. But rather than stick with the generic resolution of “save more,” it’s time to set some purposeful financial resolutions that will improve your money management skills.
What is the Goal of Good Money Management?
Money management is how you handle your finances: sticking to a budget, saving for goals and investing in your future. The goal is to confidently make solid financial decisions and use your money to support the lifestyle you want, now and in the future.
Good money management is one of the crucial skills most of us need to learn but weren’t formally taught.
What Should Your Financial Goals Be?
There isn’t a one-size-fits-all approach to improving your money management and setting financial goals. These goals will vary depending on your situation and what you want for the future. That might mean anything from paying down debt to saving for your child’s college education. Setting financial goals is personal, although there are some common themes most goals fall under: spending less, saving more and paying down debt.
How Do You Set Financial Goals for the New Year?
When setting financial goals for the New Year, you’ll want to pick one or two to focus on that you can realistically achieve (with some amount of hard work and focus). As you’re considering different goals, think about:
- Why is a goal meaningful?
- What exactly do you want to accomplish?
- What are the steps you’ll take to get there?
Ready to make some financial resolutions for the New Year? Here are seven ideas to help you decide what resolutions you should make:
1. Create (and Follow) a Budget
Despite it being one of the best ways to control your spending and increase your savings, not everyone has a monthly budget that they follow. By setting a budget, you’re able to understand where your money is going and create a plan for how you can reach your financial goals.
Don’t worry, a budget isn’t meant to restrict you. It’s simply creating a plan for how you’ll spend the money that you do have. Estimate what you need to spend monthly on your necessities like housing, food and transportation. Plan to put the remaining money toward savings, paying down debt and discretionary spending.
It may take a few months to come up with a budget that balances your savings goals and your discretionary spending, but keep adjusting until you find a plan that works for you.
2. Pay Down Debt
It’s hardly a secret that many Americans are in debt, but you don’t have to stay there. Nearly 80% of American adults are in debt, but according to a CreditCard.com poll, 65% don’t know how or when they’ll get out of debt. That’s a frustrating spot to feel stuck in.
Debt, especially the high-interest type like credit card debt, can be expensive and can limit your future financial options. But it’s not your forever reality. Make it a goal to tackle your high-interest debt this year. Review some of the best ways to pay off debt and then create your plan for the New Year. You can also combine your debt through debt consolidation.
3. Start an Emergency Fund
What’s the best way to deal with unexpected expenses? Rather than relying on a credit card, have an emergency fund that you can use as they happen (because they will happen).
Unfortunately, not many Americans have an emergency fund ready to help them through financial challenges. According to the Federal Reserve, 40% of Americans wouldn’t be able to pay cash for a $400 emergency expense.
To make sure you’re prepared for the unexpected, start setting aside a little money each month into a savings account that you only use for emergencies.
4. Improve Your Credit Score
Your credit score is an important part of your financial health. A good credit score signals to lenders that you have a history of making on-time debt payments and they can expect that you’ll repay what they lend you. That solid history could save you money in the long run – lenders often offer the lowest interest rates to people with the best credit.
Improving your credit score won’t happen overnight, but if you start implementing strategies to increase your score, you can find yourself with a healthier score in the future.
5. Save for Retirement
You know that saving for your golden years is important, but it always seems to fall down your list of priorities because it’s not an immediate need.
It’s time to reframe that because many Americans are facing the real possibility of never being able to retire. If you haven’t started yet, make saving for retirement an urgent priority.
Start by seeing if your employer offers a 401(k). If they do, that’s a good place to start saving, especially if they offer to match a portion of the contributions you make. If you don’t have access to a 401(k), look at your options to open an individual retirement plan (IRA). Ideally, you’ll want to set up an automatic transfer to your retirement account each month so you’re putting money away without having to think about it.
6. Focus on Security
With large-scale data breaches happening regularly, the odds are your personal information is out there for anyone to access. Make it a priority this year to secure your financial information.
Update your passwords to something unique and difficult to guess. Or try a password manager to keep your passwords secure.
Additionally, consider contacting the credit bureaus to freeze your credit. That way if someone does get a hold of your information, they won’t be able to open new accounts in your name.
7. Create a Will
While it’s uncomfortable to think about, a will is important to make sure your money goes where you want it to once you pass away. While this is a crucial document to have, the majority of people haven’t created one. Only 44% of Americans have a will, meaning over half of the population doesn’t have a plan for their money when they pass away.
Creating a will doesn’t need to be a costly or time-consuming activity. And it’s something your loved ones will feel relieved you’ve done.
How Do I Start My Financial Plan?
If you want to tackle the big goal of creating a full financial plan for yourself in 2020, don’t worry, it’s not as overwhelming as it seems. Start with some of the resolutions listed above: set goals for yourself, create a budget you can stick to, pay down debt and start saving – both in an emergency fund and retirement.
Once you have those basics down, congratulations! You’re on your way to creating a financial plan for yourself. Just like with so many other things in life, starting with small steps and taking consistent action will help you make progress towards your goals.
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How to Make a Budget
If you’re wondering how to make a budget, don’t worry: this article will walk you through the process of using a simple framework to secure your financial goals.