We’ve all heard the slogan “a new year, a new you” in some sort of variation. Likewise, we’ve all started a new year off with well-intentioned resolutions that usually fade away the first time we’re faced with a plate of our favorite cookies or snack. So instead of vowing to exercise more or to eat healthier this year –goals you’ve likely already abandoned, why not instead focus on financial resolutions that can help improve the way you save for a big purchase like a house or a car, save for retirement or pay off existing debt?
Following are a few guidelines for making financial resolutions you can actually stick with:
- Set realistic goals for yourself. While the idea of buying a house, or paying off all your debt may be appealing, if it’s not something you can actually attain you are just setting yourself up for more resolution failure. Instead, identify a realistic goal based on what you earn, what your monthly living expenses are and how much you can put away each month without negatively impacting your day-to-day lifestyle.
- If paying down or outright eliminating debt is your goal, one of the best things you can do is to consolidate your debt. This can be done by moving all your debt to your credit card with the lowest interest rate or, if possible, by paying it off by taking out a loan with a lower interest rate than what you are already paying your existing creditors.
- Set up automated payments that come out of your account on the same day your paycheck goes in. Doing this ensure that you won’t be tempted to spend that money on other things and is an easy way to pay down debt, or even build up savings by establishing automatic transfers to a separate savings account.
- Make sure to invest in your individual retirement account (IRA), or open one if you don’t already have one (the maximum contribution limit for 2018 is $5,500, or $6,500 for anyone 50 or older making catch-up contributions). Whether you choose a traditional IRA (which will give you a tax break now, but will leave you paying taxes on withdrawals at the time of retirement) or a Roth IRA (where you’ll pay taxes upfront, but then get withdrawals tax free when you are retired), an IRA combines tax advantages with the power of compounded growth. There’s still time if you haven’t yet contributed for 2017, as the deadline to do so is April 17, 2018.
- Eliminate any unused accounts or services –from banking accounts or credit cards that accrue services fees or annual membership fees, to gym memberships you don’t actually use. Just be sure if you decide to close your oldest credit card, as doing so could negatively impact your credit score.