12 Ways to Start the New Year Off on the Right Financial Foot

With the new year comes the chance to reflect on the past year and set new goals. However, don’t just set physical and mental wellness resolutions. You should also add financial wellness resolutions as well.

To help you reach your financial goals in the new year, here are twelve ways to start fresh:

1. Revise your budget.

Financial health starts and ends with a budget. With a budget, you can determine where your money goes each month, save, and pay off debt. However, you just can’t set and forget your budget. It is important to review your budget periodically to make sure it still suits your needs.

For example, you may want to revisit your budget when starting a new job, moving into a new home, or having a child. But, why wait until these events occur to assess your budget?

With that in mind, start the new year on the right foot by reviewing your budget. Specifically, take a look at your fixed and variable expenses, as well as your income. And, it also wouldn’t hurt to set your financial priorities for the upcoming year.

Let’s say you want to save some money for a summer vacation or down payment on a new car. Or, perhaps you’re aiming for even more retirement savings. Remember, it’s easier to create your ideal budget if you know your top priorities.

2. Save more.

A study conducted by Experian in 2021 found the number one financial resolution to be saving more money. Thankfully, you can accomplish this in a number of different ways. Consider increasing your 401(k) contributions, setting up automatic transfers to a high-yield savings account, and cutting back on unnecessary purchases — particularly during the holidays.

“You can also use a credit card to your advantage,” suggests Alexandria White for CNBC. There are some great cards out there that offer cash back, points, or miles for purchases that can be used to offset your purchases. The American Express® Gold Card, for example, offers a $120 dining credit ($10 statement credit every month) at Grubhub, The Cheesecake Factory, Goldbelly, Wine.com, Milk Bar, and Shake Shack.

If you’ve struggled with saving in the past, start simple. Using Acorns, you can set aside spare change on every credit or debit card transaction into a savings account. All that spare change will add up quickly.

3. Calculate your net worth.

The start of the new year is a good time to figure out what you’re worth financially. To assess your financial health and reach your goals, you need to calculate your net worth.

In order to figure out your net worth, subtract your total liabilities from your total assets. Assets include investments, savings, cash deposits, and equity in a house, car, or anything else you own.

Once you do this calculation, you’ll see what resolutions you need to make. Examining all your assets and liabilities can help you figure out where you should prioritize your current spending and saving and where you need to make changes.

4. Check in on your emergency fund.

Now’s the time to make sure you’ve got enough savings for a rainy day if you haven’t already. In case of unforeseen circumstances, an emergency fund can help you stick with your long-term investing plan. In case your employment situation changes, it can help you keep afloat. A cushion of three to six months of living expenses is often considered ideal.

What if your emergency fund is non-existent at the start of the new year?

Begin by calculating your monthly expenses so you know how much you need in your emergency fund. Rent, mortgage, utilities, and basic expenses should be included. Again, experts recommend saving three to six months’ worth of expenses. But it’s never a bad idea to overestimate to be on the safe side.

5. Improve your credit score.

Credit scores are a snapshot of your finances. More specifically, this is a three-digit number that shows how much you’ve borrowed and repaid. Creditors look at your score as a sign of trustworthiness.

If you’ve got a high credit score, you’re more likely to be able to handle your finances and repay debt; if you’ve got a low score, you’re more risky. Conversely, if your score is low, you’ll have a higher interest rate and have a harder time getting credit.

In short, credit scores are a big deal. And, if you have a damaged credit score, this is the year to start rebuilding by:

6. Tackle your high-interest debt.

The stress of debt, particularly high-interest debt like credit cards, personal loans, and student loans, can be crippling. This might explain why 53% of Americans intend to pay off debt over the next year as part of their 2023 New Year’s resolutions, making it the most common financial resolution of the year.

To get started, make a list of all your debts. From there, see if you can reallocate some of your spending to pay off your highest interest rate balances sooner. If you have any remaining debt, you can consider consolidating it, which might help you get a lower interest rate on a single loan by swapping varying interest rates on multiple loans, credit cards or lines of credit.

In most cases, getting out of debt can take a long time. However, the sooner you start focusing on it, the more you’ll save. Getting rid of debt also frees up money for other important financial goals every month.

7. Reset your retirement plans.

Consider budgeting a set amount per month for your retirement savings if you have a 401(k), 403(b), or 457 plan at work. Don’t forget about individual retirement accounts (IRAs), too, if you can.

Employer Plans

You should contribute to your401(k), 403(b), or 457 plan at work as much as you can comfortably afford, up to the maximum for the year. In addition to the regular contribution limits, if you’re 50 or older by Dec. 31, you can make extra catch-up contributions.

It’s usually a good idea to contribute at least enough to your employer’s plan to earn any matching contributions.

What if you’re self-employed? You can contribute to a SEP IRA, profit-sharing plan, or independent 401(k) depending on your income. For independent 401(k)s, the contribution limit jumps if you’re 50 or older by Dec. 31.

IRAs

Whether you’re covered by a retirement plan at work or not, you and your spouse can each contribute to a traditional IRA or Roth IRA, as long as your combined taxable wages and net self-employment income don’t fall below the maximum. In 2023, anyone age 50 or older can contribute an extra $1,000, bringing the total contribution to $7,500, or $625 per month. It’s up from $7,000, or $583 a month, in 2022.

In 2023, you are unable to contribute to a Roth IRA if your modified adjusted gross income (MAGI) is between $138,000 and $153,000 for single filers, or $218,000 to $228,000 for married couples filing jointly. In addition, you may be limited in how much you can deduct from your traditional IRA contributions depending on your income and whether you have a workplace retirement plan.

Annuites

If you’ve maxed out your other retirement contributions, you can optimize your retirement portfolio with an annuity.

An annuity is a way to get a guaranteed retirement income without having to pay a lot up front. After you buy an immediate annuity, you’ll start getting money between a month and a year later. The income will come later with deferred annuities.

Annuities can be a lifetime income source in addition to providing retirement income. Additionally, you can use the investment to supplement other investments that rise and fall.

Annuities also offer tax-deferred growth. This means you won’t have to pay taxes until you withdraw your gains.

However, annuities may not be suitable for everyone due to their risks. On the other hand, if you do your research correctly, they may make a good addition to your portfolio.

8. Update your savings goals.

You might be tempted to make it easy for yourself to access your money. There is a risk, however. Money that is easily accessible will be spent. After all, money has a tendency to burn a hole in one’s pocket.

If you want to reach your savings goals, make sure to transfer income from your checking account to a separate savings or investment account. Better yet? Set up an automatic deposit from your paycheck into your savings account. As a result, you’ll be able to set money aside before you have a chance to spend it.

9. Review your life insurance policy.

While insurance may feel like a necessary evil, it’s a crucial risk management tool. A life insurance policy and a disability insurance policy are essential to protect your loved ones and even yourself in the unfortunate event of your death or disability. Make sure you have the appropriate insurance coverage by consulting a licensed insurance agent or financial advisor.

Based on your previous medical expenses, compare multiple health insurance plans to determine which is best for you.

Lastly, make sure you have enough coverage on your car insurance policy. A low amount of liability insurance, for example, could result in a lawsuit if you cause an accident. This is because your policy does not cover the accident victim’s loss in full. Additionally, you might be able to save money by dropping optional coverage you don’t require.

10. Put your health first.

“Finances and health are nearly impossible to separate,” Kate Underwood writes in a previous Due article. “After all, health care costs money, and making money is a lot simpler when you’re healthy.”

Perhaps you think you don’t have time to practice healthy habits such as a balanced diet, exercise, or adequate sleep. In light of the many financial benefits of focusing on your health, you may change your mind.

It has been estimated that medical reasons account for two-thirds of bankruptcy filings in the U.S. Regardless of whether the statistics are accurate, medical costs can be really tough for most families. So, in short, a healthy lifestyle can save you a lot of money in the long run.

As such, kick the new year off with a bang by:

11. Invest in what matters most to you.

According to Morgan Stanley’s 2022 Investor Pulse Poll, 71% of respondents said they want their portfolio to align with their values, beliefs and issues that matter to them. But only 44% said it’s happening. Furthermore, 66% of respondents said they wanted diversity, equity, and inclusion policies in companies they invest in.

Whether you want to boost diversity at your company, tackle climate change, alleviate poverty, or help others, work with a financial advisor to help you invest in what matters to you. Consider 2023 as a time to add more impact to your investments while potentially earning a profit.

12. Get your taxes done early.

“Money is a major source of stress on people, and what tax season does is shine a great big spotlight on the issue,” Michael McKee, a Cleveland Clinic psychologist and president of the U.S. branch of the International Stress Management Association, tells WebMD. “Money takes center stage at tax time, even if you might have been able to push it to the wings the rest of the year.”

You can put your mind at ease and save yourself from unnecessary stress by gathering your receipts and doing your taxes early in the new year. Beside, the sooner you do it, the sooner you’ll get your return!

FAQs

What do you do to keep your financial resolutions?

Make realistic goals and remind yourself why you made the resolution when you’re tempted to quit. Having part of your paycheck automatically deposited into a savings account or transferring money from your checking account to a separate savings or investment account can also help.

What is the maximum amount of money I can set aside each month?

Each person’s circumstances are different. It should become clearer how much you can reasonably set aside once you work out how much you have coming in.

A mortgage and utility bills don’t leave much room for wiggle room. But you can probably cut down on others and put that money elsewhere, like canceling some subscriptions. According to financial experts, you should save at least 20% of your income each month.

Is your emergency fund sufficient?

Experts recommend keeping three to six months’ worth of living expenses in your emergency fund. However, many factors can affect this, including:

In other words, if you spend roughly $4,000 per month on essential living expenses, your emergency fund should have at least $12,000 to $24,000.

Is there a reliable way to pay off debt?

You can get rid of debt most easily by not spending more than you can afford. If you do this, you’ll be able to pay your bills on time each month and you won’t accumulate interest on overdue balances.

Consider “snowballing” your payments if you have multiple accounts that you can’t zero out each month. When you pay off smaller debts first, you’ll see results quickly and be motivated to keep paying

Are you ever done saving?

To put it simply, no.

You should have enough in your savings account to cover regular but not unexpected expenses like home and vehicle maintenance, vacations, and gifts. In addition to regular savings, you should have enough to cover acute emergencies, like changing your car’s tires. While you can’t always predict when these things will happen, you should still plan for them.

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