The year 2022 is winding down, and that means it’s time to think about resolutions for the coming year. With rising interest rates and inflation at a 40-year high, financial resolutions are foremost in the minds of many consumers.

A recent study by the American Psychological Association found that 65 percent of respondents said money was a significant source of stress. Improving your finances in the coming year can benefit your overall health by reducing your worries over being in debt or not having enough in your savings account to cover an emergency.

Financial health statistics

Financial health consists of being able to pay for living expenses as well as setting money aside for future goals such as getting married, buying a house or paying for an education. Concerns about money can have a significant impact on people’s mental health, according to a Money and Mental Health report by Bankrate and Psych Central. The survey found:

  • More than 4 in 10 people (42 percent) said money worries have a negative impact on their mental health.
  • Among those with household incomes below $50,000, the number citing money as a negative factor in their mental health rises to nearly half (48 percent).
  • The generations who felt the most strongly that money negatively affected their mental health were Gen Xers (60 percent) and millennials (59 percent).
  • Women were more likely than men to report money having a negative effect on their mental health. Nearly half (46 percent) of women reported money took this type of toll on them, compared to 38 percent of men.
  • Of those who said money negatively affects their mental health, 49 percent said looking at their bank accounts was a trigger. Other events that sparked negative feelings were paying a bill (41 percent) and making a purchase (34 percent), according to survey respondents.

In addition to mental health, money issues can impact people’s general quality of life, especially when inflation makes it difficult to keep up with everyday expenses. A recent Bankrate financial milestones survey found that the state of the economy has had the following effects on Americans:

  • More than half (53 percent) of adults have delayed a major financial milestone.
  • The majority (58 percent) have avoided activities or events.
  • Many (57 percent) feel their quality of life has been negatively impacted.

When it comes to saving money, Bankrate found that 58 percent of Americans are concerned about the amount they have in emergency savings, and 55 percent of those who work say they’re behind on retirement savings.

Here are 10 practical resolutions that can help improve your finances, along with expert tips on how to stick to them.

1. Consolidate credit card debt

Americans carry $925 billion in credit card debt as of the third quarter of 2022, according to the Federal Reserve Bank of New York. This reflects a $38 billion increase since the second quarter and a 15 percent year-over-year rise.

If you have credit card debt, consider making it a goal to pay it off. There are several approaches you can take, but two common strategies are paying off your highest debt first (the debt avalanche method) and paying off your smallest amount of debt first (the debt snowball method).

If you’re struggling with making payments, consider credit counseling, a low-interest balance transfer, a personal loan or even debt settlement.

2. Can’t stick to a budget? Create a spending plan instead

If you have had trouble sticking with a budget, consider ditching the traditional budgeting method and create a spending plan instead, says Loreen Gilbert, an experienced wealth manager and CEO at WealthWise Financial Services.

“The concept of living on a spending plan instead of a budget can give you freedom and peace of mind,” Gilbert says.

A spending plan allows you to choose what you spend your money on instead of restricting yourself on what you can’t spend. Start by determining your monthly income and then decide what spending categories are most important to you.

As a rule of thumb, start with necessary expenses that include items such as housing, utilities, groceries and savings. After identifying how much you need for those categories, create others your remaining funds can go toward, such as entertainment and travel.

Money management apps are good tools for keeping track of where your money is going. Some banking apps offer similar tools.

While a budget categorizes your spending into percentages based on wants, needs and savings, a spending plan is a bit more flexible and allows you to decide how to allocate your leftover money after covering your needs. Spending plans may be a better strategy for those who prefer less rigid guidelines than those enforced by a budget.

3. Prioritize saving money

One of the easiest ways to build savings is by automating contributions, which alleviates having to think about how much money to set aside each month.

Many employers allow employees to divide their paychecks so that different amounts go into different accounts. Another option is to set up automatic transfers between bank accounts. Regardless of which option you choose, make it a priority to have your savings automated.

Another way to increase your savings is to devote a larger percentage of your budget to the category of saving money. This can be done by reducing the amount allocated to things such as entertainment.

You can also build up your savings more quickly by switching to a bank account that pays a higher interest rate. These often can be found at online banks, which don’t need to pay for the overhead costs of maintaining branches.

4. Start an emergency fund

A recent Bankrate survey found that more than half of Americans have less than three months’ worth of expenses saved in an emergency fund. But an emergency fund is an important financial tool that can help deal with unexpected expenses, such as home or car repairs.

The new year is as good a time as any to start (or grow) your emergency fund. In general, experts recommend saving three to six months’ worth of living expenses. Start by opening a separate and dedicated high-yield savings account. After that, consider these four tips:

  • Evaluate your spending and look for areas where you can save.
  • Set a savings goal.
  • Set up automatic contributions.
  • Try to increase your contributions over time.

Experts recommend saving enough in your emergency fund to cover three to six months’ worth of living expenses. In addition to being able to cover unexpected expenses, an emergency fund could also help if you become unemployed by enabling you to pay for necessities like housing, transportation and food.

5. Boost your retirement savings

Saving for retirement is one of the most important aspects of a sound financial plan.

“Use [the new year] to boost or maximize contributions to 401(k)s or HSAs, plot out holistic retirement goals (e.g., Where will I live? Will I work? How much to budget for travel?) and, no matter your age or life stage, take meaningful steps to boost your financial wellness,” says Lorna Sabbia, head of retirement and personal wealth solutions at Bank of America.

There are a few ways you can boost your retirement savings. For one, if your employer offers a 401(k) match, be sure you’re contributing enough to get the full match since it’s essentially free money. Another thing to consider is looking at where your money is being invested. Many experts recommend investing in a diverse portfolio of assets to reduce your risk but still achieve attractive returns.

Finally, it’s important to remember that the only way you get the market’s long-term average return of 10 percent is by holding through all the tough times.

“Your retirement savings will grow quicker if you pick a solid long-term plan and then stick with it through the good and bad times, but especially the bad times,” says James Royal, Bankrate investment and wealth management reporter.

Royal says that investors should continue adding to the account and avoid selling, no matter how tempting it may be.

6. Learn better investing habits

Don’t limit your investing to only making tax-advantaged retirement contributions. Investing can help you boost your financial well-being, as it can be a way to outpace inflation and increase your purchasing power.

If you already have an emergency savings account, consider setting up an investment account for goals with specific time horizons, like early retirement or saving for a house.

“While it’s great to max out your tax-advantaged retirement accounts — $6,000 in an IRA and up to $20,500 in a 401(k) [in 2022] — you’re going to have even more opportunities if you save in a taxable account as well,” Royal says.

In 2023, the maximum contribution limits will be increased to $6,500 for a traditional IRA and $22,500 for a 401(k).

Royal adds that some of the biggest perks of investing outside of your retirement account include:

  • No limit to what you can save.
  • Tax deferral benefits on unrealized gains (stocks you don’t sell).
  • Immediate access to the cash without penalties or other restrictions.

If you’re just getting started, consider looking into a robo-advisor, which will do the investing for you after taking your risk tolerance and ideal earnings into consideration.

Look to the following as possible places to start investing your money:

  • Index funds: This may be a good choice for anyone who doesn’t like to actively pick stocks, since the fund passively owns all of the stocks in the index. Index funds are often safer than investing a large amount of money in just one or two stocks.
  • Bonds: Bonds are often considered a reliable income stream, since they’re associated with less risk than stocks — although a tradeoff is they often bring in lower gains. Investors often use bonds as a way to balance out a portfolio that also contains riskier stocks.
  • Mutual funds: A mutual fund is a collection of diversified stocks, bonds and money market funds that is owned by a pool of investors. You invest in a mutual fund by buying shares in it, and some mutual funds require a relatively low minimum investment.
  • Exchange-traded funds (ETFs): Like mutual funds, ETFs enable you to invest in stocks and bonds, yet they often come with low management fees —  so they can be cheaper to own than mutual funds. Like stocks, you’re able to trade ETFs during the day.

7. Improve credit score

A good credit score varies depending on the scoring system. For example, FICO considers a good score to be 670 to 739, while the VantageScore scale considers 661 through 781 to be good.

Either way, your credit score plays a critical role in determining whether you get access to financing and other financial services you need. Your credit score can determine how much interest is paid on a loan, for example, and in some states credit scores are a factor in setting car insurance rates.

Consumers can get a free credit report every year from each of the three major credit reporting companies, as guaranteed by the Fair Credit Reporting Act. Some credit card issuers and other lenders also let their customers know their credit scores for free. Alternatively, you can choose to purchase your score from one of the three credit bureaus.

To increase your credit score, consider these four tips:

  • Pay all bills on time and in full.
  • Lower your credit utilization ratio.
  • Don’t apply for new accounts too often.
  • Consider meeting with a financial advisor or expert at your local bank to assess your personal financial situation and determine ways to improve your score.

8. Cook more meals at home

Put more money back into your wallet by cutting back on restaurant food. Eating at home can be fun (and easy) with meal subscription services, which give you the option of picking new recipes each week and deliver the ingredients straight to your door.

You can save even more money by cooking from scratch. Find recipes online or ask friends and relatives for their tried-and-true ones. After a tryout, calculate your savings and consider putting the extra money toward paying down debt or building up your emergency fund.

Cooking from home can be more fun if you try getting your hands on some new cookbooks, cooking with others, or attempting meals you normally wouldn’t make. Anyone who’s not much of a chef might try buying already-prepared entree items — like meat or fish — and cooking side dishes like mashed potatoes or pasta from scratch.

To get the most for your money, peruse your local grocery store ads and create meals around what’s on sale in a given week. Although you may feel like you’re not saving more than a few dollars each week, good money-saving habits can ultimately save hundreds or even thousands over time.

9. Update your beneficiaries

It’s a good idea to revisit your beneficiary designations soon after you’ve experienced any life-changing situation. Designating someone as a beneficiary for one or more financial accounts entitles the person to the benefits of the account upon your death. People commonly named as beneficiaries include spouses, children or other relatives.

Accounts for which beneficiaries are often designated include bank accounts, life insurance policies, brokerage accounts and retirement accounts.

“If you haven’t looked at it in a while or especially if there has been a change in family dynamics such as a marriage or divorce, review the beneficiary designation on your life insurance and retirement accounts to make sure it reflects your current intentions,” says Bankrate Chief Financial Analyst, Greg McBride, CFA.

Also, check your retirement and bank accounts, insurance policies and other financial accounts to make sure your beneficiary designations are up to date.

Adding a beneficiary to your accounts is critical to ensure your assets go to the person you want to have them. Beneficiary designations trump wills, so be sure your will and any accounts or policies, such as life insurance, are aligned in their directives.

10. Look for ways to make money

Sometimes, it’s less about savings and cutting back and more about increasing your income. For instance, starting a side hustle can be a great way to effectively put away more money, pay down debt or even help make ends meet. In fact, a recent Bankrate side hustle survey found that 41 percent of Americans with a side gig said they needed it to pay for living expenses.

Some common side hustles include freelance writing, tutoring, dog-walking, pet-sitting or selling items in an online marketplace. Some people’s side hustles eventually turn into full-time jobs and careers. If you’re looking to start a side gig to make extra money in the coming year, remember New Year’s can be a good time to create goals around starting your own business selling your own skills or goods.

By finding different ways to increase your revenue streams, you aren’t entirely dependent on one income source. Not only can that strategy help you make more money, increase your savings and reach your goals, it can also provide some protection if you lose your primary job.

Bottom line

Due to record-high inflation, the coming year may be a time when many consumers focus on building their savings and decreasing spending. Some may continue to put off milestones, such as buying a house, due to factors like high mortgage interest rates. What’s more, people’s purchasing power is weighed down by high prices on everyday essentials.

Whether you’re ready to reach new financial milestones in 2023 or you simply wish to save more money, following these practical resolutions can help you stay on top of your finances.