The New Year is right around the corner and even more daunting than that is the end of a decade. Start this new chapter in your life off right and make the decision to improve your personal finances. Read on to learn more about 5 New Year’s resolutions to improve your personal finances and choose at least one to commit to.
1. Make a Budget
The simplest step that you can take to improve your finances in 2020 is to create a budget. It may sound scary but it will give you a better understanding of where you’re spending your money and show you areas where you can save. Saving money will require you to change your spending habits but it will be worth it! Imagine being just that much closer to your next financial goal, whether it is buying a house, moving to a better apartment, buying a car or paying for college.
First create a log of your monthly expenses in a spreadsheet, start with the big ticket items: rent or mortgage payments, car payments, student loans, car insurance, etc. Next is smaller bills like electricity, internet/cable, water, and phone bills. Then tackle the everyday expenses like the grocery store, eating out, and shopping. If you only pay with credit cards rather than cash it will make it easier to keep track of your spending. Finally categorize all of your spending from the last month into car, house, food, and fun expenses. Divide how much you spend on each category by your take home pay for one month to find the percentage you spend on each category. If you find that you’re spending 30% of your take home pay on fun and you aren’t saving enough then make a resolution to spend less on fun. There are cheaper ways to have fun, even free ways! Learn about some ways to help you stick to your budget.
2. Emergency Savings
Many people don’t have a savings in case of emergencies. We don’t like to think about what happens if you get sick or injured and can’t work. But in order to be financially responsible and successful, it is important to have saved enough to cover at least one month of expenses without pay. This means you first have to calculate how much you spend in a month - this is explained in #1. Then make a resolution to save that much this year! You have all of 2020 and all you have to do is start now! So let’s say you calculated you need $2000 to cover one month’s expenses, you only need to save $167 a month for one year. That’s the same amount as staying in for a few dinners instead of eating out or making your lunches at home instead of going out.
3. Set Up Automatic Payments
How can one person possibly remember that the mortgage or rent is due on the 1st of the month, electricity bill is due on the 10th, phone bill is due on the 12th, internet bill is due on the 15th, car payment is due on the 20th and water bill is due on the 25th? Easy! You don’t have to remember ALL of them….
Missed payments even for small things like electricity or internet can hurt your credit and can cause a big headache in your life when you get home and the lights don’t come on. Simplify your life - set up automatic payments for the smaller expenses. Electricity, internet/cable, phone bills, all of these things are usually under or around $200 and as long as you know you have that much in your checking account you can set up automatic payments and forget the due dates.
From personal experience, the bigger payments like rent or mortgage and car payments should not be automated unless you really have saved a lot in your checking account. The last thing you want is to not have enough money in your account. For these larger payments set up a recurring monthly calendar reminder in your phone for a couple of days before it’s due and the day it’s due - this way you have less of a chance of forgetting and you can check your account before paying for them.
4. Manage Your Debt
Most of us have some kind of debt, whether it is a mortgage, a car loan, student or personal loans, and credit cards. If you don’t have a handle on your debt it can seriously affect your credit and your life. First identify all sources of debt in your life. Then find the fine print for each and figure out the interest rates. This is very helpful to set up a plan to pay off your debt because you may be focusing on paying one kind of debt off and then starting on another after when you’re racking up more interest than you ever realized. List the sources of debt by interest rate, from high to low with their balances and minimum monthly payments. After accounting for all of the minimum monthly payments, see what amount each month you can allocate toward paying off your debt. Then use that amount only on the account with the highest interest rate. As you pay off each one make your way down the list and before you know it you will be debt free.
5. Improve Your Credit
All of the previous resolutions will actually improve your credit, however there are still some other steps you can take. First, check your credit reports - find out how to get your free annual credit reports here. Resolve any discrepancies with each credit bureau. Find out your credit score from a free site, such as Credit Karma. Sites like this will show you the factors that determine your credit score like credit history, credit payments, number of accounts and so on. You can see where you can improve your credit by looking at the details provided. For instance, if you have no credit history, the first step is to open an account so you can get a credit card and most importantly pay it off in its entirety each month!
Now for the hard part...sticking to it! Decide which of these resolutions you’re going to commit to and start taking the steps today to start the year off on the right foot. You will only be successful if you make new habits. It’s time to break old habits and make room for new financially responsible and successful habits. You can do this - it will be worth it.
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