The new year is a time to make resolutions to improve your life. While most people focus on their physical health and weight, you should take this opportunity to look at your financial health. After all, being financially healthy could be just as important as your physical well-being. Here is a look at 10 key financial resolutions that you should make for the coming new year.
10 Key Financial Resolutions This New Year
Set up a budget
One of the best ways to get your financial house in order is to start with a budget. Think of your budget as your financial blueprint. You certainly will not fully understand your financial situation if you do not have a budget.
So, what is a budget? A budget takes your income and expenses together and places them in one document. There are several free apps online that allow you to set up a budget quickly. A simple search on your preferred search engine will pull up some free, easy-to-use budgeting tools.
One of the keys to being financially fit is your ability to save money. The more you save, the more you will be able to protect yourself from unexpected surprises that can cost you money as well as allowing you to invest in your future. Once you have set up your budget, consider dedicating at least 10% of your income to your savings. It is important that you "pay yourself first." If you have to cut expenses to hit your savings goals, do your best to cut your spending. Your savings can make a significant impact on your future.
Have an investment strategy
Once you have some money saved up, you may consider investing it. When you invest, you allow your money to work for you. Ideally, you will want your investments to pay your monthly expenses. You should discuss your unique situation with a financial advisor if you are interested in investing.
There are lots of investment strategies out there. Some are riskier than others. One of the world's most successful investors, Warren Buffett, recommends that the average person put their investment capital in a low-cost index fund. An index fund mirrors the performance of a stock index such as the S&P 500. Investing in an index fund might be the smartest and easiest investment you ever make. Here are three low-cost index funds to consider after consulting with a financial advisor:
- Fidelity 500 Index Fund (FXAIX) – This fund is one of the cheapest S&P 500 tracking funds in the marketplace today. It charges a mere management fee of 0.15%. Plus, it requires no minimum investment to get started.
- Vanguard 500 index (VFIAX) - This fund seeks to match the performance of the S&P 500 index with a low management fee of .04%. However, this fund does have a minimum investment amount to get started.
- Schwab S&P 500 Index Fund (SWPPX) – This fund is another one of the cheapest S&P 500 tracking funds out there. It charges a scant fee of .02% and requires no minimum investment.
- Acorns – allows you to invest very small amounts of money, including "rounding up" your purchases, for example, if you purchase $9.88 in gas, Acorns will "round up" and invest the $0.12. It might not seem like much, but over time these small investments can add up.
We do not offer financial advice. Check with a financial advisor before making any investment decision
Stop impulse spending
One of the biggest budget killers is impulse spending. Yes, it's hard to stop impulse buying, retailers are quite good at making you think you need things that you really don't need. One great way to stop impulse buying is to shop with a list. Unplanned spending is a big budget buster. Even small purchases add up over time.
Impulse buying can seem really easy if you have credit cards, you don't even feel the money leave your wallet until the bill comes later. Here are some tips to help you reduce your chances of impulse buying:
- Wait at least a day before making any unplanned purchase, you might find that the next day that "impulse to purchase" is gone.
- Remove your saved credit card information from online stores.
- Leave your credit cards at home when you go shopping.
- Shop with a list, buying only what you need.
Prepare for the unexpected
It is always a good idea to have emergency money set aside for the unexpected. The COVID-19 pandemic is an excellent example of an unforeseen emergency that caused lots of financial challenges. Here are some emergency situations that you need to consider:
- Medical emergency
- Home repairs
- Vehicle repairs
- Pet medical bills
Have a long-term plan
You want to have a long-term financial plan that will allow you to achieve financial independence. Your plan should look at where you want to be, financially, over the next 10 to 30 years. For example, do you want to buy a house in 10 years? Do you want to be retired in 30 years? By having a long-term plan, you can start saving for your bigger goals.
Get out of debt
Debt may be a reason why so many people cannot get ahead financially. Take credit card debt, for instance. Some credit cards have a 29.99% APR. That means that you have to pay almost $300 to service $1,000 of debt per year. That is $25 a month wasted on paying the interest on credit card debt. You may benefit from working hard to eliminate debt from your life.
Use your credit cards wisely
Credit cards can quickly sink all your financial plans. That is because credit cards are easy to use and many have a high-interest rate. So for the new year, make a plan not to use your credit cards on a regular basis. If you can, plan to leave your credit cards at home. This one act alone may save you big money in interest rate charges alone.
Stop "Keeping up with the Joneses"
Many people feel pressure to have as many material things as their neighbors, family members, and co-workers. Focus on your finances first. "Keeping up with the Joneses" can place you in a financial hole that could take years to dig out. So, for the new year, be sure not to be competitive with your spending. It's not a race, finances are personal. Remember, there's always someone who has money that you, just ask Warren Buffet!
Look for bargains
No matter your income, you should always look for opportunities to save. When you become adept at finding bargains, you can put yourself in a position to get more for less. You can start with finding savings at your local supermarket. When it comes to major purchases such as cars and homes, be sure to do your research. Try to find bargains each week in the new year to become a "value hunting" expert. There are many online marketplaces that sell gently used items – this can potentially reflect huge savings for you if you can find what you need at a great price.
Get financial fit for the New Year
It is time to make this year the best year ever for your finances. Try all the steps above. You may become pleasantly surprised at how well your financial situation may improve this year. As always, seek the advice of a professional financial advisor before making any serious decisions.