Now that you have toasted in the new year and recovered from the holidays, it’s time to think about your yearly resolutions. You could make the traditional promises to lose weight, eat better and exercise daily. But gyms are crowded and desserts taste good. Instead, put your spending habits on a diet and focus your fresh start on your wallet. January is the perfect time to take a look at money matters and start the new year off with financial resolutions.
Set, and Stick to, a Budget
This is the one resolution that will make all of the others possible. Now matter where you are on the financial spectrum, creating a realistic budget is essential to setting, and abiding by, spending priorities. Take a fresh look at how you did last year and how you would like to allocate your funds differently this year. As you draft your new budget, include essentials like housing, utilities and food costs first, and then move on to answer the bigger questions of how much you can pay toward your debt, how much you can set aside for your emergency fund and how much you will put towards retirement savings. Don’t forget to include extras like entertainment and fun treats. Any budget that is all work and no play will get shoved aside before the year even starts.
Once you have your new budget in place, set aside time each month to review it. If you find you are overspending in some categories you’ll need to make a change, either to your spending habits or to your budget. Remember, a budget isn’t set in stone. It’s a living document that can be changed as needs and situations evolve.
Pay Down Debt
If you have outstanding debt, paying it down is the first step to financial health. Start the new year off with a plan to tackle debt by making a list of all of your accounts in order of interest rate. Next, contact the lenders to negotiate a lower rate. If you have been a good customer and consistently make on-time payments, they may be willing to work with you. Now, start making extra payments above the minimum amount due, focusing on the loan with the highest interest rate first. Once your top debt is paid off, snowball the payments by putting them toward to next debt on your list. Using this method you can quickly put a significant dent in your outstanding debt.
Prepare For The Unexpected
With any luck you will sail through the year without any difficulties. But, you never know when there will be a bump in the road and it’s essential to prepare ahead of time. Strive to set aside an emergency fund of at least three months worth of expenses. However, if you are at a greater risk of unexpected financial hardship, such as working in a volatile or layoff –prone industry, having increased health risks, or have aging parents who may require assistance, it is a good idea to stash away an even larger emergency fund of six to nine months worth of expenses.
While keeping emergency funds in a traditional savings account is the easiest solution, it may be a better idea to place it in a Roth IRA at a different bank than your primary accounts. This allows the funds to be easily accessible if you need them, yet limits the temptation to dip into them when it isn’t necessary. A Roth IRA also offers significant tax advantages that a traditional savings account does not.
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