It’s that time of year to make new goals and resolutions. There are probably some financial resolutions on your list, or at least there should be. Some may be broad, such as “Save more money.” Some may be specific, such as “Buy a home before July.” Here are 5 realistic, specific financial resolutions you can add to your 2016 resolution list and how to achieve them.
1. Create a realistic budget. Calculate the difference between your monthly income and your monthly fixed spending. Then, decide how much of that you can ideally and realistically save each month. Whatever is left over will go toward your variable spending, such as clothes, entertainment, eating out, etc. Decide which specific categories you can cut back on to help you save each month. Trim the budget wherever you can because little savings add up.
2. Track all your expenses. This goes along with creating a budget, but it’s an important resolution that many fail to keep. Creating a budget is important, but it’s the easy part. Tracking your expenses will allow you to review exactly where your money is going, making it easier to stick to your budget. Tracking your expenses helps you see those leaks in your budget, such as your daily Starbucks runs or fast-food lunches. It also allows you to adjust your budget when necessary. If you are spending $600 every month on groceries, budgeting for $300 is probably unrealistic. There are a number of ways to track your spending. Some banks provide budgeting and tracking programs for you if you use your bank account for all your spending. You can also do it the old-fashioned way by collecting all your receipts and entering your expenditures into a spreadsheet. There are also free apps such as Mint (https://www.mint.com/) that help track expenses.
3. Pull your credit report. You should pull your credit report and review it at least once each year. Whether or not you plan on making a large purchase in 2016, being familiar with your credit report and credit score will ensure that there are no mistakes on your credit report that could hurt your score or ability to eventually get a loan. Your report will also provide you with any information that may negatively affect your credit. This will help you plan to improve your credit throughout the year.
4. Increase the amount you saved in 2015. Increase the amount you saved each month in 2015 by at least ten percent in 2016. To make saving easier, have a set amount directly deposited into a separate savings account each month so you’re not tempted to spend it.
5. Create a plan to pay down your debt. Consumer debt can be, well, consuming. Create a plan to prioritize your debt and pay down any consumer debt you are currently carrying to avoid overpaying in interest. Some people start with the balance that has the highest interest rate. Others feel a psychological benefit by starting with and paying off the smallest balance first. Develop a realistic plan that works best for you. Before deciding which balance to pay off first, you may benefit from calling your credit card issuers to see if you can get a lower fixed rate on your balance owed. Once you’ve paid off your consumer debt, you should just have one credit card on which the balance is paid in full each month. Cards with outstanding balances should not be used until they are paid in full. If you have student loans as well, focus on consumer debt first, then your student loans since interest rates on consumer debt are generally much higher than student loan interest rates.