New Year, New You: 5 Types of Financial Resolutions to Consider
By Living Better on February 26, 2019
The start of each year gives us all an opportunity to look within to figure out what’s important—and then make adjustments to our external lives based on our goals and dreams. The start of a new year is a great time to harness all this hopeful, aspirational energy and channel it into improving your personal financial outcomes.
But personal finance is a very broad term. You may be wondering where to begin. Start by breaking it down into more manageable categories so you can set goals within each. Here are five types of financial “resolutions” to consider in honor of a fresh year—although you can apply these ideas at any time.
Resolutions for Spending
This year, learn to take a mindful approach to spending. It’s unavoidable, after all. Plus, treating spending as inherently “bad” can be counterproductive if it leads to money-related anxiety or splurges. A more balanced approach is to allot a healthy percentage of each paycheck, like half, to spending primarily on mostly essentials.
If spending has traditionally been a big problem for you in the past, you may benefit from trying a spending fast to break the habit. For a set amount of time, you’ll only spend on essentials like groceries and utilities. This can help you reframe your thinking around spending—plus you’ll have a nice chunk of change to save after a few weeks.
Resolutions for Saving
There’s a difference between staying afloat in the present and building a foundation for the future. Optimizing your savings goals now will set you up for a fruitful year. Not sure where to start? The 50/30/20 rule is a basic rule of thumb meant to help people monitor how much they’re tucking away vs. how much they’re spending. According to this rule:
- 50 percent (maximum) should go toward paying for necessities.
- 30 percent goes toward discretionary purchases.
- 20 percent (minimum) should go into savings.
The easiest way to make this happen is to automate the savings process, sending money from your checking account to an account that’s not hooked up to a debit card. This will help you build both regular savings and your emergency fund, which functions as your safety net in the face of unanticipated expenses that could otherwise quickly derail your financial stability.
Resolutions for Eliminating Debt
Turning a blind eye to your debt may be easier than confronting it—temporarily. But unless you’re actively paying it down, it’s accruing in the background. If you already owe a significant amount, make this the year you figure out the best debt relief solution for you. Here are a few options consumers use to eliminate debt:
- Debt consolidation: Involves taking out a lower-interest loan to cover high-interest credit card debts, then repaying this single loan over time.
- Debt settlement: Through a program like Freedom Debt Relief, consumers contribute a certain amount to a dedicated account before the company negotiates with their creditors, attempting to reach a lower settlement amount.
- Debt management: A debt management plan as part of credit counseling helps consumers come up with a workable plan, possibly even helping them reduce their interest rates.
The best solution for you depends on your circumstances, so be sure to do ample research before reaching a decision.
Resolutions for Retirement
No matter your age, it pays to start thinking about retirement as early as possible. Consider the difference between investing $400 per month at 7 percent return starting at age 22 vs. age 32. If you begin at age 22, you’ll have $1.37 million by the time you’re 67. If you wait until you’re 32, you’ll have $663,000 saved—not bad, but not as great. Waiting until age 42 means you’ll have stashed away about $303,000. As you can see, waiting longer provides diminishing returns because your interest has less chance to compound over time.
Resolutions for Your Credit Score
Your credit score matters. Make the simple resolution to keep a closer eye on it this year, being sure to understand regular credit reports and what factors affect your score.
New year, new you. It’s time to make some helpful financial resolutions in these areas and stick to them.
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