The Financial Resolutions to Make This Year
As we head into a new year, make sure these money matters are on your radar.
There's no denying this was a tough year for just about everyone around the world. But it wasn't just illness and political divide that ravaged our collective society. According to a recent study by Fidelity Investments, in 2020, more than two-thirds of Americans experienced financial setbacks due to the loss of a job or household income or another emergency expense. Still, 72 percent of Americans surveyed say they are confident they'll be in a better financial position throughout 2021. "Americans are clearly ready to leave 2020 behind and start 2021 off on the right foot, including when it comes to their finances," said Stacey Watson, senior vice president with oversight for life event planning at Fidelity Investments, in a statement.
"This last year taught us how important it is to have a handle on our finances in the event that the unexpected happens," says Colleen McCreary, chief people officer and financial advocate for Credit Karma. And the new year provides the perfect excuse to revisit your finances and see where you need to adjust your saving and spending habits. "It can't hurt to pledge to take your finances more seriously in the new year—in fact, it can end up being one of the most helpful things you do for yourself and your family."
But where should you begin? The key is to set a realistic goal that you know you'll be able to stick to throughout the year, says McCreary. Here, some practical places to start.
Set "no spend" days for yourself and your family.
"Whether it's every Monday or the 15th of each month, mark your calendar on the days that you pledge to not spend any money," says McCreary. Find free activities for entertainment and cook at home instead of ordering out. "You may be surprised how many seemingly small purchases add up over the course of a month, and how much you end up saving if you find certain days to avoid spending," she says.
Pay cash or use a prepaid debit card for the categories where you struggle to stay on budget.
Before you start budgeting, you should do an audit of your spending habits, says McCreary. If you tend to spend an excess in certain areas—anything from groceries to entertainment—set a budget for those categories. When you go to spend, bring the exact amount you budgeted for in cash, or put that cash on a prepaid debit card, says McCreary. That way, when the money's gone, you know it's time to stop spending.
Set a check-in date for yourself.
A formal check-in date acts as a mini deadline, so you can assess any progress you've made and adjust if needed, says McCreary. And make sure to "show up" with a physical track record of your progress—notes in a journal or a log on your computer or phone—to help hold yourself accountable.
Check your credit reports regularly.
It's good to know what your score is and how it tracks throughout the year, but checking your reports regularly (once a month or, at minimum, once a quarter) also helps you spot any errors, says McCreary. Disputing those errors can help you improve your credit scores and get back in good standing—a necessity when applying for any loans, including car leases or a home mortgage.
Open a high-yield savings account.
To make your hard-earned money work for you with little effort, consider opening a high-yield savings account where your money can earn interest over time, says McCreary. "It's not uncommon to get a shockingly low interest rate to the tune of .01 percent on a traditional savings or checking account, while interest rates on high-yield savings accounts can be higher." The sooner you start saving, even if it’s just a few dollars a week, the more you can save over time.
Create dedicated savings accounts.
If you're struggling to save, it may be helpful to change how you save, says McCreary. "One simple way to save differently is to create a dedicated savings account. Instead of putting money into one big savings account, you'll be contributing to your emergency fund savings or your 'treat yourself' fund." Dedicating your accounts to a specific purpose will make it easier to see how they are growing over time, plus help you avoid accidentally spending dedicated money on something else.