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It's a great time to start thinking of goals for 2022. Although many people choose to focus on goals related to their physical health, it's also worth considering some New Year's financial resolutions. The start of a new year offers the opportunity to make effective changes.
If you're interested in making a few financially focused resolutions but don't know how to save more money, we've got you covered. Here are eight potential actions you could take during the next 12 months.
1. Set & Stick to a Budget
Your household budget is a good place to start for your New Year's financial resolutions because it could help you figure out how to save more money for your other goals. To begin, review your credit card statements and bank accounts to better understand what you spend each month. Then consider whether there are any areas you can cut back on, such as reducing how much you spend on dining at restaurants.
Next, see whether there are any opportunities to negotiate better rates for services. For instance, you might be able to reduce your streaming charges or negotiate a discount on your cellphone plan by price shopping around at other providers. Cutting even a few dollars off your monthly expenses can add up in the long term.
Once you've identified a comfortable budget for the coming year, try your best to follow it.
2. Make a Plan to Pay Off Your Debt
If you have any outstanding debt, consider how you can make progress on paying it off. It might make sense to start by tackling high-interest debt like credit cards because they cost the most to borrow against.
For other larger debts — such as student loans or a mortgage — see if it's possible to refinance to a lower interest rate. This could be a way to reduce what you owe in interest so you can put more of your money toward paying off the actual debt.
There are several different strategies for addressing debt, so make sure to evaluate what might work best for you.
3. Build Your Emergency Fund
You've likely already heard about the importance of emergency funds. This sort of account typically consists of liquid cash and is available for when you need things such as medical care and car repairs or if you lose your job. A good rule of thumb is having at least three to six months of living expenses in your fund.
If you don't yet have an emergency fund, the start of a new year may be a good time to start one. You could make a concerted effort to regularly deposit money, or you can set it to happen automatically by routing a portion of each paycheck toward your savings. And if you already have an emergency fund but are unsure how much you've saved, the year-end is a convenient time to check your balance and see where you stand — especially if you had to dip into it this past year. If the total is below your ideal amount, consider planning to add to it through the upcoming year.
4. Save More for Retirement
Take a moment to reflect on how much you saved for retirement over the past year. Are you maxing out your retirement plans? Have you reached the goals set in previous years? Is there more you could be doing?
Looking at your current financial situation and figuring out how to save more money can get you closer to your retirement target. If you're receiving a 401(k) match through your job, try to save at least enough to receive the full amount your employer offers. This is often referred to as "free money" and can potentially help accelerate your retirement planning efforts.
5. Create Extra Sources of Income
Another worthwhile option for your New Year's financial resolutions is to think of ways you might earn more money. If it's been a while since you received a raise, you could plan on speaking with your boss to find out how to make that happen.
You might also use this reflective time of year to think about whether you want to make extra money by working part-time or freelancing. If you're able to balance new work with all of your current engagements, it could help you prepare even more for the future.
There may also be ways to make passive income outside of work. Consider such actions as creating online content for ad revenue or investing your savings in stocks, bonds or real estate that may earn a higher return than at a bank. Just keep in mind that investments cannot guarantee growth or sustainment of principal value; they may lose value over time. Past performance is not an indication of future results.
6. Improve & Protect Your Credit Score
If you haven't checked your credit report in a while, do so with a free copy. The Federal Trade Commission recommends using AnnualCreditReport.com. This enables you to see whether everything looks correct or if there are any mistakes, such as a debt you paid off still being listed. You could try to improve your credit score during the year by making all of your monthly debt payments on time and working to pay down your credit card balances.
To be extra protective of your credit and any potential identity theft, you may want to look into setting up a free freeze on your credit report with Equifax, Experian and TransUnion. That way, even if someone steals your SSN, they couldn't open a new credit account under your name. Keep in mind that you won't be able to do so either, though you can temporarily lift it to do so, and it doesn't interfere with your ability to apply for jobs, rent property, or get insurance.
7. Make (or Review) Your Estate Plan
Your estate plan lays out what you want to happen when you get sick or pass away. If these unpleasant events were to happen without an estate plan, it'd much more complicated for your family members to figure everything out. Accordingly, you may want to set up — or simply review — your estate plan in the new year. Keep in mind that estate plans must be set up by an attorney.
If you've already established an estate plan, review the beneficiary instructions on any retirement plans and insurance policies you have. Make sure they are correct because if you have the wrong person listed, it's possible that person could still inherit the money, even if you've listed different instructions in your will.
You might also take this time to check that you have all the documents in order for your estate plan, such as a will explaining who should receive your property. Other records, such as a living will or financial power of attorney, can provide instructions for who should take over your affairs when you're too ill to make decisions yourself. It's also not a bad idea to check in with your family members and discuss your plans so they know your wishes and where your documents are kept.
8. Meet With a Financial Professional
The start of the year is a good time to meet with a financial advisor, an insurance agent or estate planning attorney, depending on your priorities. These professionals can go over your New Year's financial resolutions and help you decide whether they make sense as well as give you advice for making them happen. It's typically worthwhile because a financial professional can customize advice based on your individual situation and financial goals.
By setting some clear goals for yourself, you can seek to make the new year a financially successful one.