Smart Finance Resolutions for the New Year

New year, new you? Many people take the turning of the calendar page as an opportunity to reevaluate their priorities and make resolutions to improve themselves or their circumstances in the new year. According to Psychology Today, 41% of Americans make resolutions. Unfortunately, 88% of resolutions fail. Financial resolutions are in the top five of all resolutions made, but financial resolutions also make the top five list of failed resolutions. Ouch!

Does this mean you shouldn’t set financial goals for the new year? Absolutely not! The new calendar year is the perfect time to reevaluate your financial position and develop new goals. However, to increase the likelihood you’ll be successful with your resolutions, you need SMART goals! “SMART” stands for specific, measurable, achievable, relevant, and time-bound. Following this framework when you set your financial resolutions means you’ll be setting yourself up for success instead of crafting another resolution list that will be abandoned by Valentine’s Day. So instead of just writing down, “I want to save money,” for instance, you could decide that you want to save $800 by August to pay for a fall vacation: That’s a concrete, achievable goal.

Unsure what resolutions you should make for yourself? No worries. We have a great list you can adapt to be relevant to your financial life.

Build an Emergency Fund

Life can be unpredictable, and having available cash can see you through an unexpected crisis without needing to take on additional debt. Emergencies can range from major life catastrophes (like house fires) to smaller but still financially disruptive emergencies (such as an emergency room visit or unexpected car repairs). Convinced? Take an actionable first step by deciding how much you want to save. Remember, don’t set an unrealistic goal you won’t be able to achieve in a reasonable amount of time. According to USA Today, 57% of adult Americans have less than $1,000 in cash available to them, and the average American has less than $4,000 in savings. If this sounds like you, start there. Save $1,000. This amount will allow you to manage smaller emergencies and meet insurance deductibles in the face of a larger crisis. Next, work up to having $4,000 saved. If you already have more than the average American in savings, a good next goal should be to have six months of expenses in the bank. Your goal needs to be realistic, and you’ll need to have a plan for how you will save the money, so make sure your goal is attainable. We’d all like to have a million dollars in the bank, but you probably won’t be able to save that much over the coming months. Maybe you can trim expenses, reallocate existing money, take on a side gig, or find another way to dedicate money to your emergency fund.

Create (and Stick to) a Budget

A fantastic fundamental financial goal is to create and stick to a budget. It’s hard to be successful at managing your money unless you have control over your money. Hate the idea of a budget? Embrace the concept of a spending plan instead. A spending plan lets you allocate money to your fixed expenses (housing, insurance, debt repayment, etc.) while deciding how much to allot to necessary flexible spending (food, transportation), savings, and discretionary spending (vacations, gifts, savings). A spending plan often feels less restrictive than a more traditional budget. You’ll need to know what your expenses genuinely are before you can start allocating your income. Look over your bank account and see how much you’ve spent on housing/utilities/debt/groceries/eating out/entertainment/etc. over the past few months to gain an understanding of where your money is going. Ready to start tracking your expenses and budgeting? Try websites like Mint, You Need a Budget, or Spendee to find the budgeting software that works for you. How can you make sure you achieve this goal? Break it down and set deadlines. Maybe you’ll devote January to tracking that month’s expenses and reviewing your spending from previous months. In February, you’ll set up your budget or spending plan. Afterward, set goals like “check finance app daily” or “enter all daily transactions before bed” to make your new financial habits part of your daily life.

Trim Expenses

The best way to save some cash is to stop spending it. No one is telling you to give up Friday night dinners or your morning coffee (though if you can, that’s great, too). You might be able to save money in painless ways by trimming your fixed expenses.

• Start by getting quotes on your insurance coverage. According to a recent study, 40% of Americans haven’t compared insurance quotes over the past few years. Those who have saved more than $400 annually. Some saved up to $1,845! That’s a fantastic return on a couple of hours’ work.
• Next up is your cell phone bill. You can save big money by switching to a low-cost carrier. If you’re hesitant to make a big change, be aware that small changes, like signing up for auto-pay or skipping your next upgrade, can also put money back in your pocket.
• Are you still paying for cable? Consider cutting the cord. Replace large cable packages with streaming services, which range in price from $5-$50. Just don’t sign up for so many streaming services that you end up spending more than you need for cable! One great thing about streaming services versus cable is that it’s easy to cancel your subscription and resume it later. So feel free to sign up for a different service each month to access fresh new content.
• People are often amazed at how much they spend on cheap subscriptions. Apps like Truebill identify your subscriptions, tell you how much you are spending, and help you cancel any services you no longer need.

Embrace No-Spend Days

Saving money requires not spending it. Many people find success by declaring that they won’t spend money one day a week (this is a SMART goal!). For most of us, not spending money requires some organization. Do you run errands once a week? Make sure to gas up your car that day, too. Do a little meal prep (so your breakfast and lunch are ready to go) so you won’t be tempted to spend money on an emergency bagel or sandwich. After a couple of months of regularly spending no money one day a week, level up! Your new habits of meal-prepping and planning your transportation expenses should make it easy to expand your no-spend days to more days in the week. Just remember to make sure your goals are realistic for your life. If you meet your trivia group at a pub on Thursdays, you won’t want to set that day as a no-spend day because you might be setting yourself up for failure.

Make an Extra Payment on Your Mortgage

Instead of making 12 mortgage payments a year, consider making 13. That extra payment can add up to a significant impact. A $100,000 30-year mortgage with an interest rate of 5% would cost $93,256 in interest over the life of the loan. If you make an additional payment a year, you’ll save $30,474 over the life of the loan and pay it off a little more than four years early. You’ll want to make sure to contact your mortgage servicer and tell them to apply the extra payment to the principal. You can make this extra payment possible by saving 1/12th of your mortgage payment every month or by paying half of your mortgage payment every two weeks (if your loan servicer allows this). Don’t have a mortgage? This same concept can apply to car loans, student loans, credit card debt, or anything else you need to pay off.

Put Money Toward Retirement

The magic of compound interest means the earlier you start saving for retirement, the faster your money will start working for you and the more money you’ll have when you reach retirement age. Saving for retirement can seem very complicated, but it helps to break your retirement resolution down into a few concrete steps. In January, begin by reaching out to your employer to see if your company offers a 401(k) or 403(b) plan. These plans allow you to contribute pre-tax dollars, which will lessen your tax burden. Some employers match your contributions, too. Find out how much your employer matches and if it’s contingent on how long you’ve been with the company. If your company doesn’t offer a retirement plan or you aren’t eligible for it yet, look into an IRA.

Have you had an emergency before your emergency fund is fully stocked or has an emergency derailed your budget to the point of financial strain? A title loan or a personal loan may be the alternative lending solution you need to help you get through a crisis and get you back on your feet.