This is the time of year when many of us resolve to get healthy. We typically vow to adopt a variety of lifestyle changes, from hitting the gym to eating better to getting more sleep. While those are admirable goals, research suggests that we should also be making resolutions to improve our financial health.
The percentage of Americans considered financially healthy dropped to 31% in 2022, the first decline in five years, according to the Financial Health Pulse Report. With inflation at 1980s era levels and wages failing to keep pace, it’s easy to see why consumers are struggling to maintain their financial wellbeing. As of October 2022, 60% of Americans were living paycheck to paycheck, with little to nothing left over after covering monthly expenses, according to a LendingClub report.
Getting your finances in shape takes time and patience. Here’s a look at some financial resolutions to consider working on this year and a few tips to help you reach your goals.
- Save Money. This may seem easier said than done, but committing to saving just a small portion of your earnings can make a big difference over time. Begin by reviewing your bank statements to see exactly how much of your money is going to fund needs versus wants. From there, set a savings target. Be realistic. If you aim too high, it might be difficult to cover essential expenses and keep your resolution. Making a budget will allow you to more carefully track expenses and adjust when needed. Automating your savings could also increase your chances of success. One option is to use a “round-up” mobile app, such as Chime or Acorns, that automatically rounds up your purchases and deposits the extra funds into a savings account. You can also check if your employer offers the option to split a certain portion of your direct deposit between your checking and savings account.
- Pay Off Credit Cards. Paying off debt was the top goal for those who planned to make financial resolutions in 2023, according to The Ascent, a Motley Fool service. Starting with credit card debt makes sense given that credit cards usually carry higher interest rates than other types of debt, like car loans, and can take longer to pay off. There are two effective ways to tackle credit card debt on your own: the snowball method or avalanche method. With the snowball approach, you pay off your smallest balance first and then move to the next smallest balance. This method offers immediate progress for those who need to see results to stay motivated. In contrast, the avalanche method prioritizes paying off cards with the highest interest rates. This strategy requires patience, but will save you money in the long run because you’ll be paying less interest. Moving your credit card debt on to a card with a lower interest rate (a balance transfer) may also be an option, but make sure you understand how long that introductory rate will last and how the rate will change if you don’t pay off your bill within that time frame.
- Establish an Emergency Fund. This might replace your generic goal of saving money, especially if you’ve recently found yourself unable to cover unexpected expenses without taking on new debt. Experts typically suggest saving enough money to cover six to nine months’ worth of base living expenses (which isn’t the same as salary), but if that sounds out of reach, start smaller. You could aim to save enough to cover a surprise expense – say a car repair or broken appliance. Look back at those unexpected bills you faced in the last year to get a better gauge of what amount makes sense for you.
- Live Within Your Means. If this feels like an insurmountable challenge, you’re not alone. Thirty-four million U.S. consumers spent more than they earned in the first half of 2022, according to Bloomberg. There are a couple of rules to follow to help manage your income more effectively. The first is to always use cash or a debit card so you can better track what you’re spending, and avoid making purchases that you can’t immediately cover. If that isn’t an option, or you use a cash-back or point-earning credit card, commit to paying off your balance in full at the end of each billing cycle. Last, but not least, fight the temptation to keep with the Joneses. Stay focused on your family’s goals, not how your neighbors or others in your social circle are spending money.
Remember, change is hard. Whether you’re hoping to save money or lose weight, maintaining a good attitude will make it easier to sustain new, healthier habits.
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