With the start of a new year comes a rash of resolutions. These promises to do better in the coming year are an annual rite of passage, but making those promises is far easier than keeping them.
Everyone who has resolved to lose weight and get more exercise can sympathize with this situation, but promises to save money can be just as hard to keep. If you have vowed to make this the year you finally get a handle on your finances, you need more than a promise – you need a plan.
If you plan ahead and make the right choices, you can get ahead financially in the coming year. Here are some simple and relatively painless ways to keep those financial resolutions once and for all.
Banish the bank fees. If you are still paying to keep your money in a bank, now is the time to banish those fees. If you look around, you can find a bank that values your business – and does not charge you for it.
Get a grip on your cash flow If you want to improve your personal finances this year, start planning your cash flow in advance. When you learn to develop a budget and stick to it, you get a better idea of how much cash you will have on him each month. Understand what your cash flow will be for the next six months and adjust your spending accordingly. When you reduce your reliance on credit cards and start focusing on how much cash you have on hand each month, you realize how easy it is to reduce your debt load simply by making smart purchasing decisions.
Ramp up your interest. Once you have banished the bank fees, look for ways to make your money work harder for you. Interest rates are on the rise, so take advantage of that free money.
Adjust your withholding. If you get a big tax refund every year, why not put that money to work now? Once you have found a great interest rate on your bank account, adjust your withholding rates for a fatter paycheck – and even more free money.
Pay attention to your debt-to-income ratio. Start paying attention to your debt-to-income ratio if you want to improve your financial situation this year. Understanding your debt-to-income ratio is crucial if you want to improve your liquidity and build your net-worth. Monitor what percentage of your income goes toward paying down debt and make it your mission to decrease that percentage by the end of the year.
Turn your clutter into cash. All that extra stuff gathering dust in the closet could be a source of ready cash. Make this the year you stop collecting, and start selling off your unwanted stuff.
Increase your retirement plan contributions. If you have a 401(k) plan at work, ramp up your contributions and save even more. You can reduce your tax bill and prepare for your future, all at the same time.
Abandon your unused subscriptions. From magazines you never read to services you no longer use, the cost of unused subscriptions can really put a damper on your finances. Review those subscription charges and put the money back in your pocket.
Pay more than your monthly minimum payment. Consider making larger payments on your debts to reduce the time you spend paying off your credit cards and or loans. Paying your monthly minimum payment is not an efficient way to reduce your debt. Even paying an extra $50-$100 per month on your loans or credit card balances can significantly improve your financial situation after just one year.
Set financial goals. If you want to improve your personal finances this year, start setting annual financial goals for yourself. It is not enough to want to be better off financially; you must be willing to put in the hard work. Set long-term goals like saving enough money for a vacation, purchasing a new car, or saving up for a down payment on a home. Be specific with your goal setting and track your progress on a weekly basis.
Pay down student loans. If you’re still going to school, it may make sense to begin paying on those loans right now. Long gone are the days where student loans come at low interest rates. If you’re out of school and currently paying them down, make throwing a little extra cash to the balances of the loan a priority. Read about more about student loans here.
Open a new credit card. While it may seem counter-intuitive, getting a credit card can greatly help your credit: part of your credit score is the ability to get new credit (the theory here is that your credit is good enough to get new credit). If you don’t currently have a credit card, now may be a good time to get one – credit standards for new customers are much more relaxed then they were during the last recession. In addition, there are many rewards cards programs that can save you money, especially if you pay your credit card balance in full each month. For more information on getting a credit card, see our credit card guide.
If you are renting, request that your payments be reported. While not all landlords have the capability to report to the credit bureaus, several of the credit reporting agencies do accept rent payment histories via several rent reporting services, some of which are free. This can be especially important if you are planning to buy a home sometime in the future and you don’t have much credit history already built up.
Consider talking to a financial planner. Even if you don’t have much money to invest right now, talking to a financial planner can help put your overall long-range money goals into perspective. Part of what financial planners do is actually calculate the date at which you can retire, based on monthly/weekly/annual savings rates, which can be a great motivator to save. Read more about financial planners.
Build an emergency fund. All that money you are saving? It not only helps to pay down existing debt, but having emergency funds can help stave off the financial crisis of having surprise car repairs, medical expenses, or having that home appliance or plumbing break down. If you don’t have the money to cover emergency expenses, you may find yourself getting into more debt, essentially forcing you to take a step back in your march to improved finances.
Improve your credit scores. Higher credit scores mean lower loan costs, better access to cheap credit, lower insurance, overall, your financial status is better! There are some simple things you can do to improve your credit: correct your credit report, pay down credit cards and ask for a credit line increase. Creditinfocenter has a complete guide to credit repair.