4 Ways to Improve Your Finances in 2016
January 4, 2016 | Your Finances
Taking steps to improve personal finances is among the top New Year’s resolutions people make each year. About 45 percent of Americans make resolutions every January, with more than a third setting money-related goals as their top priority, research shows.
Here are four New Year’s resolutions to get your fiscal house in order for 2016.
1. Create and maintain a realistic budget. You’re more likely to develop and stick to a budget once you get an accurate picture of your finances. Start by tracking all expenses for a month—the mortgage, groceries, gasoline, entertainment, even your morning coffee before heading to the office. Examine your spending habits. Do you earn enough to cover expenses, or do you use credit cards to make ends meet? Are you a mindful spender? Do you get what you want rather than what you need? Identify expenses you can trim. Consider using a budget-tracking tool such as LearnVest or Mint to stay organized and see where your money is going in real time. Set up automatic bill paying to help you achieve budget goals.
2. Chip away at credit card debt. High-interest credit card debt can pose a financial burden for years. For example, if you owe $5,000 at 18.9 percent interest and made the minimum monthly payment, it would take 11½ years to pay off the debt—and you would have paid $3,109 in interest. It may be painful, but list all your outstanding balances and their corresponding interest rates. Resolve to pay off a specific amount of debt per month. If possible, make extra payments toward your highest-rate account. Set up recurring monthly payments from a checking account to avoid costly penalties for missed due dates.
3. Ramp up your savings. It’s never too early to start saving for emergencies, college, a down payment on a house or retirement. If you’re not saving, resolve to set aside money (even if it’s a small amount) each month or paycheck. If you are saving, commit to setting aside an additional amount every time you get a raise or a windfall such as a tax refund. If the idea of “saving more money” sounds daunting, set a specific goal, such as cutting $50 per month off the grocery bill, bringing lunch to work three days a week or saving $3,000 for emergencies by the end of the year. Automate your savings through payroll deduction or automatic transfer from your bank account to make saving easy.
4. Revisit your financial plan. A financial plan provides a road map to achieve your goals, whether it’s saving for a down payment, college tuition or retirement. But a financial plan is a living document that needs updating yearly to keep pace with changes to your life or finances. Start by reviewing your workplace benefits, including your insurance and retirement plan options. Are you taking advantage of your employer’s matching program for retirement contributions? Should you save more money to cover health insurance deductibles now that you have a new baby? Do you need additional life or disability income insurance to protect your income because your promotion came with a hefty salary increase?
Many Americans rely on financial professionals for help with their financial plan. A financial professional can help you take stock of your circumstances and make recommendations to keep your finances on track in 2016 and beyond.