Make Financial Fitness Your Goal for 2016 by Setting and Keeping Financial Resolutions
The beginning of each new year is traditionally reserved for making resolutions, usually of the personal kind. Exercise more. Eat less. But this year, we’d like for you to consider setting financial resolutions that will help get your finances back in shape.
In its 2016 New Year Financial Resolutions Study, Fidelity Investments found that “37% of Americans are making financial resolutions this year, up 6% from 2015.” But the more interesting statistic is this one: “Of the people who made financial resolutions in 2015, more than half say they’re doing better financially today. Also, they were found to be more optimistic, more likely to be debt free and more financially secure.”1
In light of this study, if you haven’t already made your financial resolutions, you might want to start now. Your resolutions should be as specific and detailed as possible and should be measurable. You’ll want to be able to track your successes. One last thing, review your resolutions often to ensure you’re still committed to them long after January’s come and gone.
Here are five financial resolutions to get you started:
1. Resolve to Create a Monthly Budget. When you make your financial resolutions, this one should be first on your list. To accurately determine which areas you should focus on, you’ll need to know where you stand financially.
A monthly budget is a great way to take the pulse of your financial situation. It forces you to examine how much money is coming in, how much is going out, and probably more importantly, where it’s going.
Set your budget up in a spreadsheet, so you can enter all expenditures for the month. This will help you identify your spending habits – good and bad – and make course corrections to live within a set budget.
2. Resolve to Save More Money. If you haven’t been saving money on a regular basis, you’re not alone. The Bureau of Economic Analysis found that “personal savings rates as a percentage of disposable income dropped from 11% in December 2012 to 4.6% in August 2015.”2
Even if you can only set aside a small amount each month, resolve to begin saving money today. When you create your monthly budget, look for areas where you can make cuts and put that money toward savings instead of the daily latte. Re-examine your priorities and determine if your purchases are wants instead of needs. Put the money you would have spent for a “want it” item into savings.
An easy way to get started saving money is the Save a Dollar method. Beginning this week, set aside $1 in a secure place (your sock drawer perhaps). Next week contribute $2, the following week $3, and so on for 52 weeks. Don’t count the money or remove any of it during the year. On Dec. 31, 2016, you’ll be amazed at how much you have saved. A simplified version of the Save a Dollar method is to take all the $1 bills out of your wallet at the end of each day and put it in you sock drawer. Again, all you’ll do is add to your growing stash of dollars throughout the year.
3. Resolve to not Use Credit Cards in 2016. Consumer debt, used to finance new cars, college tuition and other consumer goods, hit an all-time high of $3.2 trillion in 2014.3 If you’re carrying too much bad debt (credit card purchases and auto loans – items that you don’t earn a return on your initial investment), make 2016 the year you begin paying it off.
Start by taking the credit cards out of your wallet. That way you won’t be tempted to use plastic to pay for unplanned purchases, such as those cute boots that are on sale at the mall.
Next, take a look at your statements and put your debts in order from the smallest amount owed to the largest. Begin by paying off the smallest debts first, then work your way through the list.
4. Resolve to Create a Plan to Pay-off Loans. Student loans, in particular, have saddled a generation of Americans with massive debt that will take years if not decades to pay off. With their monthly payments going to cover the interest on the loan, it will be harder for them to make a dent in their loan debt.
Resolve to increase your monthly loan payment to start paying down the principal balance. Make sure the loan servicer understands this additional money above your normal monthly payment should be applied toward the principal. If it is considered to be an early payment for the upcoming month, it will be applied toward the interest, instead of where you want it to go. A similar strategy could be used to begin paying down mortgages and car loans, as well.
5. Resolve to Up Your 401(k) or Other Retirement Plan Contributions in 2016. The beauty of these plans is that the funds are directly deducted from your paycheck, so you won’t spend that money on something other than your future. Consider increasing your contribution by one to two percentage points this year, and if you’re in a 401(k) plan, make sure you are maxing out your employer’s match.
1 Kimberly Palmer. “Your Guide to Writing Ironclad Financial New Year’s Resolutions.” U.S. News & World Report. USNews.com > Money > Personal Finance. Jan. 6 2016. http://money.usnews.com/money/personal-finance/articles/2016-01-06/your-guide-to-writing-ironclad-financial-new-years-resolutions
2 Quentin Fottrell, news editor. “5 Reasons Americans Are Not Saving Money.” MarketWatch. Oct. 10, 2015. http://www.marketwatch.com/story/5-reasons-americans-are-not-saving-money-2015-10-09. Fottrell sourced FRED Economic Data. Updated Dec. 23, 2015. https://research.stlouisfed.org/fred2/series/PSAVERT