Every January, millions of Americans make New Year's resolutions. From spending more time with friends and family to getting in shape and eating healthier, the list of popular resolutions is long. And one of the most common (and attainable) is spending less and saving more.
Financial organization takes time and energy, but it's worth all the effort. If your goal for 2018 is to get your finances in order, here's how to get started — and stay on track in the new year.
Build a Budget
Quick ... what did you spend on your daily cup of joe last year? How about other monthly subscriptions? If you can't answer these questions, it's probably time to start a budget. Visibility into your finances is essential if you want to save money and reach your short- and long-term financial goals.
Take a good look at what you spent in 2017 and decide where to make adjustments. If you do online banking, it's pretty easy to log in to your account and examine a list of your transactions. Notice any trends in your spending habits and identify places where you could scale back. This review will help you find out where your money goes and develop a budget.
Your spending should align with your priorities — and your monthly income. Stop paying for things you no longer use and reduce the costs of certain monthly bills (bye bye, unlimited cell phone plan). These adjustments could help you generate savings that will add up throughout the year. Cutting back can be painful at first, but the long-term reward will be worth it.
Save for Emergencies
As part of the budgeting process, set aside some money each month to help build your emergency fund. There's a running debate among financial experts about how much you may need to put away for a rainy day fund. Some say $1,000. Some say three to six months of living expenses, while others say eight months.
At a minimum, putting aside a few months of living expenses in the bank could help you handle those unexpected financial setbacks. (It's unlikely you'll ever hear anyone complain about saving too much.)
The most important thing to remember? Make saving a weekly or monthly habit. This habit will help you build a healthy financial cushion — which will help provide peace of mind in stormy weather.
Set Financial Goals
Where do you want to be financially a year from now? How about in five or 10 years? Think about your goals and put a plan in place to achieve them.
You may want to get out of student loan debt, save for a 20 percent down payment on a home — or take that dream vacation to Bora Bora when you retire. Whatever your goal is, it'll take planning and time to get there. Begin by figuring out how much it'll cost and identify a date by which you want to achieve the goal.
Let's say you want to pay off $30,000 in student loan debt over the next two years. To do this, you'll need to make 24 payments of $1,250 a month (give or take some interest). Determine how you could reallocate your budget to accomplish this goal or think about ways to bring in extra income — like freelancing, taking on a side job or holding off on buying big items until you're free of the debt.
Get out of Debt
If you have a significant amount of credit card or consumer debt, you'll want to become laser-focused about paying it off. Why? Because interest rates on this type of debt can be crushing, extending the amount of time it takes you to get rid of it.
Some cards have annual percentage rates (APRs) as high as 29.99 percent or more — which means that $100 pair of shoes will actually end up costing you more than what was on the price tag.
If you're setting financial goals, getting out of debt should be at the top of the list. Without debt, you'll have more financial freedom — and the power to decide how you will spend your hard-earned money.
Check Your Credit Report
Now is a good time to check your credit report, especially if you plan to buy a home or take out a loan in 2018. Your credit report provides extensive details about your credit history, including your financial accounts (credit cards, student loans, auto loans, etc.), what accounts are current or past due, credit inquiries from financial institutions and more.
According to the Federal Trade Commission, it's a good idea to check your report for potential errors and dispute anything you think is inaccurate. You're entitled to one free credit report a year through AnnualCreditReport.com, so why not take advantage of it now?
Plan for Retirement
Hopefully, you've already started saving for retirement. If you haven't, it could be time to contribute to your company's retirement savings plan or speak to a financial representative about your options, which include individual retirement accounts (IRAs), annuities and more.
If you have started saving, it never hurts to check how your retirement plan is structured. You might also consider speaking with your financial representative about your portfolio balance.
Review Your Insurance Policies
If you have auto, homeowners or life insurance, think about taking a look at your policy to see if you're still happy with its premium, deductible, limits and overall coverage. You could consider another plan if your needs have changed.
The new year is an excellent opportunity to set a resolution to be financially smart. Conquering the personal finance game isn't easy — but with a little time and effort — you could put yourself on the right track to good financial organization.