According to research from the University of Scranton, roughly 45% of Americans make New Year's resolutions each January, with financial-oriented resolutions ranking as some of the most popular.
Making financial resolutions in January is appropriate as it marks the end of what is the most expensive time of year for most Americans- a time when many have completely blown their budgets and are now facing the stark reality of how many months it will take to catch up. January is also the time of year when government documents start flooding in and we are reminded of the tax consequences of the decisions we made throughout the prior year.
Whatever the reason, the New Year is a great time for a fresh start and an opportunity to gain control over your financial health. But make sure you temper expectations and make realistic resolutions that you may actually keep. Don't get too ambitious too soon. Rather, start with the basics, including:
- Create a budget. Start by tracking your spending to determine how much money you need to cover fixed expenses, such as rent (mortgage) and utilities, and how much money you should allow for other "necessary" expenses. There are now apps on your phone that can alert you when you've exceeded your budget limits.
- Manage your debt. Eliminate high-cost consumer debt by paying off credit cards as quickly as possible. If you can't keep balances paid off, consider consolidating your debt into a lower rate home equity line of credit, if possible.
- Prepare for the unexpected. Remember to set aside a pre-determined amount of money for savings each month and make it a priority to pay yourself in this way. Enrolling in automatic savings plans makes it easier to put away money by depositing it before it is ever in your hands.
- Choose your accounts wisely. Take time to review the costs and benefits of all your bank accounts and credit cards to make sure you have the right ones for you. Rewards credit cards, for example, can pay back handsomely if used prudently. And high interest-earning checking accounts and/or savings accounts may make sense depending on your level of activity and ability to consistently meet minimum balance requirements. If you're not using certain accounts, consider them as there may be fees associated with them.
- Guard your credit score carefully. Commit to paying bills on time or even early, if possible. This affects your credit score which, in turn, affects the interest rate you'll pay when borrowing money. There are also free credit monitoring services available that can alert you if something (or someone) has compromised your credit rating. Click here to learn more about credit scores and reports.
- Regularly review your investment portfolio to make sure it aligns with current market conditions and changing lifestyle needs, such as an upcoming retirement.
- Double check that you have adequate coverage. This means choosing the right health insurance option that matches your health and age status. As you accumulate more assets, make sure you have appropriate property and casualty insurance so you don't lose what you've worked so hard to acquire. And consider long-term disability insurance to protect your earning power.
- Plan for retirement. Depending on your income, you could realize important tax advantages from either a Traditional or ROTH IRA.
Above all, make this the year that you increase your financial literacy. That means paying attention to how and where your money is being spent. Ask questions as to how you could pay less in fees and make more on investments. Do your homework. There is a wealth of information available online, starting with Cortland Bank's online financial education program! Click here to get started!