5 New Year's Resolutions to Give You a Better Financial Start in 2020
While fitness goals remain the most popular type of New Year’s resolution every year, financial resolutions are always a close second. If you’re hoping to improve your financial situation in 2020, you may want to consider setting some New Year’s resolutions to help you along the way. Here are 5 financially focused resolutions to get you started.
Stick to a Budget
Whether you’re trying to get out of debt or save for a down payment on a house, getting on a budget is going to be one of the best things you can do to help you get there. Overspending is a major problem for many people; if they see the money in the account, they have a hard time not spending it. But if you set a strict budget for yourself and focus on those numbers instead of the ones in your bank account, you’ll be less likely to spend unnecessarily, which can help you get off on the right financial foot.
There are many apps out there that are designed to help you stick to a spending plan, and many are free. Just make sure that whatever program or method you utilize, you make it a part of your daily habit. One benefit of having a budgeting app on your phone is that you always have it with you. So, you can quickly and easily enter the cost of your lunch with friends while you’re still waiting on your order, rather than having to hold onto the receipt and enter it into your spreadsheet at home later.
Pay Off Credit Cards
If you’re in debt, setting the goal to pay off your credit cards is a great New Year’s resolution. Credit cards have notoriously high interest rates, and you can often find yourself paying nothing but interest for years, if you only make the minimum payments. If you’re setting this goal, try to first focus on your highest-interest credit card. Pay as much as you can every month towards that debt until you can get it fully paid off. Then, work on the next highest interest rate, and so on.
You should try to pay double the minimum payment each month, whether you do that at once or make two payments every month as the funds become available. Any other excess you have should go towards the card as well. While it may seem difficult at first, the sooner you get out of debt, the sooner you’ll have some excess cash to spend on non-necessities.
Contribute to Retirement
Setting the goal to contribute to retirement accounts is one way to not only improve your financial situation this year, but to work towards a better financial future down the road. If you’ve never invested in retirement before, IRAs are a great place to start. They can usually be set up quite quickly and easily through your financial institution, and contributions are easy to make as well. The current maximum contribution for IRAs is $6,000 per year.
While some people wait until the end of the year to max out their IRAs, if you’re new to retirement contributions, we strongly recommend investing a small amount each month; if you want to max out the IRA by the end of the year, $500 per month should do it. Most people find smaller monthly investments to be much more manageable than trying to find $6,000 at the end of the year. Plus, if you’re putting that money away every month, you’re less likely to overspend elsewhere simply because you have the money available.
As an added bonus, retirement account contributions are tax deductible. So, while you’re improving your finances for the future, you’ll also be paying less in taxes on your 2020 return.
Build a Rainy Day Fund
Nearly half of people in the United States don’t have an emergency fund. Not having a financial cushion for yourself is putting yourself at risk of serious financial trouble if you should have unexpected medical expenses or lose your job. Ideally, you should have a financial reserve equal to at least one year of your net income. Of course, this can seem like a daunting task, and it’s not going to happen all at once.
So, consider setting a goal this year to add one month’s income to your rainy day fund. By building your cushion a little at a time, you’ll be better prepared should the unexpected happen.
Invest in Tax Planning
Taxes are a large expense for most Americans, and yet, we tend to do little to manage and minimize those expenses. Most people just accept that taxes are what they are, and don’t try to find ways to improve their tax situation. If you’ve never considered tax planning before, now may be a good time to do so.
Proper, professional tax planning can help you to organize your financial year, take advantage of deductions, and improve your tax situation significantly by the end of the year. Give us a call to learn more about our tax planning services and how we can help you.