December is winding down, and that means it’s time to think about resolutions for the upcoming year. After a year like 2020, financial resolutions are probably top of mind.
The beginning of the year is the prime time to focus on what’s going on with your money. With the right plan in place, you can stick to your financial resolutions and end the coming year in a better place than you started it.
To help you get started, here are 11 financial resolutions to set, along with expert tips on how to keep them.
1. Refinance your mortgage and/or your student loans
While the coronavirus pandemic has wreaked havoc on many parts of life this past year, it has also provided some opportunities. For example, you can now secure record low mortgage rates, making this a prime time to refinance and lower your monthly payments.
As for student loan refinancing, federal student loans are in forbearance until Jan. 31, meaning interest is suspended and payments are not required. However, this does not apply to private student loans and you may want to consider refinancing these types of loans to lock in lower rates.
2. Pay down credit card debt
Consumer credit card debt dropped in 2020 for the first time in eight years.
This data came as a bit of a surprise considering the pandemic-created recession, but it’s a hopeful sign that consumers are getting their debt under control.
If you have credit card debt, consider making it a goal to pay it off. There are a few approaches you can take, but two common strategies are:
- Paying off your highest debt first (the debt avalanche method)
- Paying off your smallest amount of debt first (the debt snowball method).
3. Can’t stick to a budget? Create a spending plan instead
If you’ve had trouble sticking to your budget in the past, 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 fixed income and then decide what spending categories are most important to you.
As a general rule of thumb, you should start with a necessity bucket, which likely includes semi-fixed expenses such as rent, utilities, groceries and funding your savings accounts. After you’ve identified how much will need to for those expenses, you can create other spending buckets, such as a fun bucket, that the remaining funds can go toward.
Money management apps like Mint are a good tool for keeping track of where your money is going. You can also find these tools on some banking apps as well.
The end result is the same as budgeting, minus the restrictive rules — making it a good strategy for those who don’t like being told what they cannot do.
4. Automate your savings
One of the easiest ways to build your savings is automating your contributions.
When you automate your savings, you won’t have to think about how much money you want to set aside each month or be tempted to put less into savings.
Most employers allow you to divide your paycheck so that different amounts go into different accounts. If not, you can likely set up automatic transfers with your bank. Regardless of which option you choose, make it a priority to have your savings automated.
5. Start an emergency fund
A Bankrate survey from June found that not having enough emergency savings was Americans’ top financial regret since the coronavirus began. Bottom line: Don’t overlook your emergency fund.
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 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.
6. Boost your retirement savings
Saving for retirement is one of the most important aspects of a sound financial plan.
“Use 2021 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 keep from selling, no matter how tempting it may be.
7. Invest more
Don’t limit your investing to only making tax-advantaged retirement contributions.
If you already have an emergency savings account, you might consider setting up an investment account to invest 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 $19,500 in a 401(k) — you’re going to have even more opportunities if you save in a taxable account as well,” Royal says.
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, you may want to consider looking into a robo-adviser, which will do the investing for you after taking your risk tolerance and ideal earnings into consideration.
8. Improve your credit score
A good credit score varies depending on the scoring system. For example, FICO considers a good score to be between 670 and 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 influence your car insurance rates in some states, as well as how much you pay in interest when you get a loan.
Visit AnnualCreditReport.com to get a free copy of your credit report and score. You’re typically only able to access one free report a year, but it’s since been increased to once a month until April 2021 as a result of COVID-19.
To increase your credit score, consider these 4 tips:
- Pay all bills on time and in full.
- Lower your credit utilization ratio.
- Take advantage of score-boosting programs, like ExperianBoost.
- Don’t apply for new accounts too often.
9. Cook more meals at home
This may be something you’ve already begun to do with many restaurants around the U.S. being limited to takeout only. Keep it going into 2021.
You can keep it fun (and easy) with meal subscription services, like Blue Apron, which gives you the option of picking new recipes each week along with delivering perfectly measured ingredients straight to your door.
On the other hand, if you’ve turned to takeout as your go-to during this time then consider giving cooking a try and see how much you save. After giving it a go, calculate your savings and Consider putting those savings toward paying down debt or building up your emergency fund.
10. Update your beneficiaries
Have you experienced a life-changing situation recently? If so, your beneficiaries might be out of date.
“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.
This includes checking your retirement and bank accounts, insurance policy and other financial accounts to make sure your beneficiaries are up to date.
Adding a beneficiary to your accounts is critical to ensure your assets will go to the person you intended them to. Additionally, it’s important to note that beneficiaries trump wills, so make sure the two documents are aligned in their directives.
11. Look for ways to boost your income
Sometimes, it’s less about savings and cutting back and more about increasing your income.
“If 2020 has taught us anything, it’s that life is uncertain and having multiple income streams is more important than ever,” says Laura Gariepy, business coach and founder of Before You Go Freelance, a blog that offers advice for aspiring freelancers. “People are realizing that self-employment is not inherently more risky than traditional employment because there’s built-in income diversification when you have multiple clients or customers.”
There’s a variety of ways you can increase your revenue streams. Freelance work, for example, is great for those who have a specific skill to offer others. But there are also less technical side hustles, like dog walking, to consider. Additionally, if you have a bit more money to front, then you could consider investing in rental properties.
The bottom line is there’s plenty of ways to passively increase your income, it’s just a matter of finding what works for you and your situation.
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.