These 9 Financial New Year’s Resolutions Will Help Secure Your Future
Ready to set some resolutions for the new year? Consider adding some financial goals into the mix.
Contributing Writer at Tally
December 1, 2022
When the new year rolls around, people across the nation resolve to do better than the previous year. These New Year’s resolutions range from losing weight to quitting smoking to being a better person.
Some people look at their finances in the new year and want to make financial New Year’s resolutions but don’t know where to start. Below, we list nine ideas for financial New Year’s resolutions that you can use.
1. Pay off high-interest debt
High-interest debt, such as credit card debt, can put a real damper on your personal finances. Often, the interest you pay on this debt monthly far outweighs the amount you pay on the principal balance, leaving you stuck for many years.
So, a great financial New Year’s resolution is to follow a debt repayment plan and save big on interest charges. You can tackle your debt in many ways, but two common methods are the debt avalanche and the debt snowball.
With the debt avalanche method, you focus on paying off your highest-interest balances first, maximizing your interest savings. With the debt snowball method, you focus on your lowest balances first, using the small victories as motivation to keep going.
With your debt paid off, you will have the extra cash flow to make other financial New Year’s resolutions in future years.
2. Build an emergency fund
You should strive to build an emergency fund that can cover three to six months’ worth of expenses in the case of a financial emergency. This includes job loss, major home or auto repairs, income reduction and more.
Create a savings plan in the new year where you set aside a certain amount each month that puts you on track to have at least three months’ worth of living expenses in a savings account. For example, if you have $3,000 in monthly expenses, your plan would involve saving at least $750 per month for a total of $9,000 by the end of the year.
If you can’t afford to put that much away each month, you can start smaller and aim for at least $1,000 in savings by the end of the year. This would take the monthly savings down to $83.33.
You can also automate your savings to make life easier. You can either set up your direct deposit to send money directly to your savings account, or you can schedule monthly automatic transfers from your checking account to a savings account.
You’ll also want to determine the best place to put your emergency savings so it earns interest while sitting idle. Some options include a high-yield savings account (HYSA), a traditional savings account, a certificate of deposit (CD) or a money market account.
3. Save money for retirement
About 49% of Americans aged 55 to 60 have no retirement savings, which may mean they’ll have to keep working past retirement age. If you dream of putting work behind and enjoying your golden years, make it a financial New Year’s resolution to start saving toward retirement now.
Many experts recommend saving 10% to 15% of your income toward retirement. That may sound nearly impossible to some people, but if your employer has a 401(k) matching program, it may be easier than you think.
For example, if your employer matches you dollar for dollar on all 401(k) retirement contributions up to 5% of your salary, you would only need to save 5% of your salary to reach the 10% savings rate. Your employer would cover the other 5%.
Even if you don’t have a matching 401(k) to rely on, you can still reach that 10% minimum. Create a financial plan that starts small in the new year — even just an initial 1% savings goal is better than nothing. Every time you get a raise, channel the majority of that raise into your retirement savings until you eventually reach the 10% to 15% savings rate.
Also, max out any tax-advantaged retirement accounts, such as a Roth individual retirement account (IRA) or 401(k), before moving on to other savings paths. After maxing out those tax-advantaged accounts, you can move on to stocks, bonds, mutual funds and more.
If you’re unsure where to start, talk to a financial advisor, and they will help guide you.
4. Build your credit score
Your credit score is the doorway to certain life goals, such as homeownership or buying a more reliable car. You can’t get access to good mortgages or auto loans with low interest rates without a good credit score. So, another great financial New Year’s resolution is to work on building your credit score.
Start by checking your current credit score and pulling your credit report. Review your report to see what may be keeping your score low. If you have collection accounts, contact those creditors and ask what you can do to pay them down and potentially have them removed from your credit report.
If your credit utilization ratio — the amount of credit card debt relative to your credit limit — is over 30%, paying down debt or getting a debt consolidation loan may help.
If it’s simply a few late payments on your credit report dragging you down, focus on making all your payments on time to help improve in this area. Automating monthly payments may also help.
If you’re new to credit and have no credit score, you’ll have to start from scratch. A few options to help you build credit when you have no score include:
Getting a secured credit card
Becoming an authorized user on a friend’s or family member’s credit card
Getting a credit builder loan
Taking out student loans
5. Refinance your debt
When it comes to loans like mortgages and auto loans, your terms and interest rate will affect how much you pay each month and over the life of the loan. If interest rates have fallen or your credit has improved since you took out your loan, it could be a good time to refinance.
Refinancing may help you lower your monthly payments and reduce the total interest you’ll pay moving forward. But before jumping into a refinancing deal, check all the loan costs to ensure you’re saving money. This includes origination fees, underwriting fees, closing costs and more. If the refinanced loan costs less than the remaining cost on your current loan, then a refinance could be a smart financial move.
Credit card debt doesn’t have traditional refinancing options, but you can opt for a lower-interest debt consolidation personal loan or line of credit. You can also use a low- or no-interest balance transfer credit card to temporarily lower your interest rate.
6. Secure life insurance
Your personal financial health isn’t all that matters. Your family’s future financial health is also important. You can help secure their financial future by taking out a term life insurance policy to ensure they are not financially strapped if you die.
To determine the amount of life insurance you need, first look at your debts and add those up. This includes credit cards, auto loans, personal loans, mortgages and more. Then, take the age of your youngest child and subtract that from 23, the average age someone graduates college if they enter at 18 years old. This is the minimum number of years of salary you should plan to cover with life insurance.
So, if your youngest child is 3 years old and you earn $50,000 per year, you’d want 20 years’ worth of salary as life insurance. That would be $1 million. Then, add that to the debts you owe and $100,000 per child for their college education to get your total life insurance policy amount.
If you have no children, simply focus on having a life insurance policy large enough to pay off your mortgage and debts and provide at least 10 years of your salary to help support your partner or provide for other loved ones.
7. Increase your mortgage payments
Mortgages generally have relatively low interest rates, but the interest charges add up because they’re often 30-year loan terms. You can reduce the amount of interest you pay by increasing your mortgage payments.
You can do this in several ways. The easiest way is to pay more than the minimum amount when you make your monthly payment. When you do this, you may have to alert the mortgage company so it applies the extra payment to the principal and doesn’t apply it to the next month’s payment.
The other way is to switch to biweekly mortgage payments.
8. Increase your financial literacy
Financial literacy is a critical piece of the puzzle for overall financial security, making it a good financial New Year’s resolution. In the new year, perhaps pick a few personal finance topics you don’t know much about or struggle with, and try to learn all you can about it.
For example, you might choose to dive into some of the following topics:
How to create a financial plan
How credit scores work
Proper money management
9. Set financial goals
Finally, setting financial goals is another great financial New Year’s resolution. You’ll want to set both short-term and long-term goals. Your goals may include some of the other resolutions on this list, but there are more to choose from as well.
For example, short-term financial goals can include:
Saving for a car
Saving for a down payment on a home
Saving for a home improvement project
Long-term goals can include:
Paying off your mortgage
Saving for your kid’s college tuition
Set your financial New Year’s resolutions and stick with them
Setting New Year’s resolutions is great, but sticking with them is the key to success. When creating financial New Year’s resolutions, you’re building a foundation for your future goals, including homeownership, financial independence, comfortable retirement and more, making them very important.
If paying off credit card debt is one of your financial New Year’s resolutions, the Tally† credit card debt repayment app can help. Our app helps you manage your credit card payments, and Tally offers a lower-interest personal line of credit, allowing you to efficiently pay off higher-interest credit cards.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 to $300.