As we approach the end of 2023, it’s time to think about future resolutions for the coming year. The year has seen a easing of inflation, but the impact of rising costs still has a lasting effect on our savings and financial well-being.
Financial Well-Being Statistics
According to the Burkett 2023 survey on money and mental health:
– 56 percent of those who feel anxious about money experience this anxiety at least once a week, and 29 percent of them feel anxious daily.
– The vast majority (82 percent) of those who say that money negatively affects their mental health blame economic factors, including inflation (68 percent), rising interest rates (31 percent), and lack of steady income or job (29 percent).
– 56 percent say that having insufficient emergency savings has contributed to negative effects on their mental health.
– Millennials and Generation Z are more likely to say that money negatively affects their mental health – 60 percent and 55 percent respectively.
Americans and Their Financial Goals
Money issues affect the quality of life for Americans and their progress toward financial goals:
– More than half (56 percent) feel behind on retirement savings. (Retirement Saving Survey)
– Likewise, 57 percent are uncomfortable with their level of emergency savings. (Emergency Saving Report)
– Among those who do not currently own a home, 47 percent say that the current housing market is the reason they do not own a home. (Financial Security Survey)
– While 37 percent hope their financial situation will improve in 2024, 26 percent believe it will worsen.
Ten Practical Financial Resolutions
Here are 10 practical resolutions that can help you improve your financial situation, along with expert tips on how to stick to them:
1. Consolidate Credit Card Debt
Total credit card debt for Americans exceeds $1 trillion as of the third quarter of 2023, according to the Federal Reserve Bank of New York. Moreover, a Burkett credit card survey found that 47 percent of credit card holders carry debt month after month.
Credit card debt can hinder financial goals, with 19 percent of those who believe their financial situation won’t improve in 2024 blaming the amount of debt they have. The burden of high-interest rates and increasing balances hampers progress toward homeownership, retirement, and emergency savings.
If you have credit card debt, consider making it a goal to pay it off. There are several strategies you can follow, but two common methods are paying off the highest interest debt first (debt avalanche method) and paying off the smallest debt first (debt snowball method).
If you are struggling to make payments, consider financial counseling, transferring balances at low interest, taking a personal loan, or even debt settlement.
2. Create a Practical Budget
In 2024, 13 percent of Americans have identified improving their budgeting as a key financial goal, according to Burkett data. A strict budget is a crucial tool for achieving financial goals. By creating a plan tailored to your income and priorities, you can ensure progress toward your goals.
“Financial matters are personal to each household”, according to Mark Lowe, CFO of the Federal Credit Union Association. “So it is essential to check in with yourself and your family and identify which categories are needs or wants”.
Balance is a key element of a sustainable budget. Allocate part of your budget for fun activities and rewards, while also setting aside money for savings and debt reduction. It is important to blend responsible planning with enjoying life’s pleasures.
Apps
Managing money is a good tool for tracking your finances and understanding how to spend them. Some bank applications offer similar tools.
3. Prioritize Saving Money
Among Americans who are worried that their financial situation will not improve in the new year, 9 percent blame spending habits, according to Bankrate data. One way to combat poor spending habits is to focus on saving first.
You can easily build savings by directing contributions automatically, alleviating the need to think about how much money to save each month.
Many employers allow employees to split their paychecks so that different amounts go to different accounts. Another option is to set up automatic transfers between bank accounts. Regardless of the option you choose, make saving a priority.
You can also build your savings faster by switching to a bank account that pays a higher interest rate. These accounts can be found at online banks where they do not have to pay branch costs.
4. Start an Emergency Fund
About one-third of Americans (32 percent) have less money in emergency accounts than they did at the beginning of the year, according to Bankrate’s 2023 Emergency Fund Survey. However, an emergency fund is an important financial tool that can help deal with unexpected expenses, such as home or car repairs.
The new year is a great time to start (or increase) your emergency fund, and 15 percent of those surveyed by Bankrate say saving more for emergencies is their primary financial goal. Generally, experts recommend saving the equivalent of three to six months’ worth of living expenses.
Start by opening a separate high-yield emergency savings account. Then, consider these four tips:
– Assess your spending and look for areas where you can save.
– Set a savings goal.
– Set up automatic contributions.
– Try to increase your contributions over time.
In addition to being able to cover unexpected expenses, an emergency fund can also help in case you lose your job by enabling you to pay for necessities such as housing, transportation, and food.
5. Increase Retirement Savings
Saving for retirement is one of the most important aspects of a solid financial plan. Many Americans regret – 21 percent – not saving early enough for retirement, according to Bankrate’s survey.
“Use [the new year] to increase or maximize contributions to 401 (k) or HSAs, set comprehensive retirement goals (such as: Where will I live? Will I work? How much should I allocate for travel?), and regardless of your age or stage of life, take significant steps to enhance your financial well-being”, according to Lorna Sabia, Head of Retirement Investments and Personal Wealth Solutions at Bank of America.
There are several ways you can enhance your retirement savings. For example, if your employer offers a 401 (k) match, make sure you contribute enough to get the full match as it’s almost free money. Another thing to consider is where to invest your money. Many experts recommend investing in a diversified portfolio of assets to reduce risks and achieve attractive returns.
Finally, it’s important to remember that the only way to achieve the long-term average market return of 10 percent is to stay invested through all tough times.
“Your retirement savings will grow faster if you choose a solid long-term plan and stick with it through good times and bad, but especially through bad times”, according to James Royal, Investment Analyst and Wealth Management at Bankrate.
Royal says that investors should continue to add more to their accounts and avoid selling, no matter how tempting.
6. Learn Investment Strategies
Your investments shouldn’t be limited to tax-advantaged retirement contributions alone. Investing can help enhance your financial well-being, as it can be a means to beat inflation and increase your purchasing power. In fact, 27 percent of Americans believe that money from savings and investments will improve their financial situation in 2024, according to Bankrate data.
If you already have an emergency savings account, consider setting up an investment account for specific time-based goals, such as early retirement or saving for a home purchase.
Royal states that some of the most important benefits of investing outside of your retirement account include:
– No limit on how much you can save.
– Tax-deferred growth on unrealized gains (stocks you haven’t sold).
– Instant access to cash without penalties or other restrictions.
If you are just starting out, consider investing in a robo-advisor, which will manage investments on your behalf after considering your ideal risk and return levels.
It may also be beneficial to include certificates of deposit in your investment portfolio, according to Lau from the Federal Credit Union. “Certificates of deposit offer a fixed interest rate and principal protection, making them a more sustainable option than stock investments,” he says. “Stock investments are subject to market volatility and risk. Additionally, certificates of deposit provide a predetermined return, offering a sense of security to investors.”
7. Improve Your Credit Score
A good credit score varies by scoring model. For instance, FICO considers a good score range from 670 to 739, while the VantageScore model considers a good score range from 661 to 780.
Regardless, your credit score plays a critical role in determining whether you’ll receive the financing and other financial services you need. Credit scores can influence the interest rate paid on loans, for example, and in some states, credit scores are a factor in determining car insurance rates.
To improve your credit score, consider these four tips:
– Pay all bills on time and in full.
– Reduce your credit utilization ratio.
– Avoid repeatedly applying for new accounts.
– Consider meeting with a financial advisor or local bank expert to assess your personal financial situation and identify ways to improve your credit score.
8. Improve Financial Literacy
Financial literacy empowers consumers to make informed decisions, navigate complex financial situations, and plan for a secure future. According to Bankrate data, 27 percent of Americans rely on advice from friends and family for financial guidance, while 20 percent consult financial advisors or other professionals.
Take time each week to engage with educational resources, whether through reading books, following reputable financial blogs, or listening to podcasts.
Here are some ways to expand your financial knowledge:
– Read broadly. Explore books, articles, and reputable sites on personal finance.
– Attend workshops and webinars. Many organizations and financial institutions offer free workshops or webinars on various financial topics, where you can learn from others’ experiences and ask questions.
– Utilize online courses. Platforms like Coursera and Khan Academy offer free or affordable courses covering a wide range of financial topics.
– Use a financial app. Some apps, like Zogo, are designed to help manage your money and educate users about personal finance.
– Follow financial experts. Stay informed by following well-known financial experts and engaging with blogs or podcasts. These resources can provide timely, reliable, and easily digestible advice and guidance.
9.
Update Your Beneficiaries
It’s a good idea to review your beneficiary designations after experiencing any life-changing event. Designating someone as a beneficiary for one or more financial accounts means that the person is entitled to the benefits of the account after your death. Commonly designated beneficiaries include spouses, children, or other relatives.
The accounts that typically have beneficiaries designated include bank accounts, life insurance policies, brokerage accounts, and retirement accounts.
Greg McBride, Chief Financial Analyst at Bankrate, says: “If you haven’t looked at it in a long time, or especially if there have been changes in family dynamics such as marriage or divorce, review the beneficiary designations on your life insurance and retirement accounts to ensure they reflect your current intentions.”
Also, check your retirement, bank, insurance, and other financial accounts to ensure that your beneficiary designations are up to date.
10. Look for Ways to Earn Money
Sometimes it’s not just about saving and cutting back but about increasing your income. For instance, starting a side hustle can be a great opportunity to set aside more money, pay off debts, or even help meet basic needs. In fact, a recent Bankrate survey found that 33 percent of Americans with a side job said they needed it to cover living expenses.
Some common side jobs include freelance writing, tutoring, dog walking, pet sitting, or selling goods in an online marketplace. Some side hustles may eventually turn into full-time jobs and careers for some people. If you’re looking to start a side job to earn more money in the coming year, remember that the New Year can be a great time to set goals around starting your own business selling your skills or goods.
By finding various ways to increase your sources of income, you’re not completely dependent on a single source of income. This strategy can not only help you earn more money and grow your savings towards your goals but can also provide some protection if you lose your primary job.
Frequently Asked Questions
How can I create a budget?
There are a few key steps to creating a budget: start by listing your sources of income, then break down your expenses into needs (like rent and utilities) and wants (like entertainment and dining out). You’ll also need categories for saving and debt repayment. Allocate specific amounts to each category based on your income and goals.
What is the 50/30/20 budgeting rule?
The 50/30/20 budgeting rule is a simple guideline for allocating your income. The rule suggests dedicating 50 percent of your income to needs, 30 percent to wants, and 20 percent to savings, ensuring that you prioritize immediate needs and future financial goals.
What is an emergency fund?
An emergency fund is a savings reserve set aside for unexpected expenses or financial emergencies. It can help cover unforeseen expenses such as healthcare bills, car repairs, or job loss. Generally, financial experts recommend saving the equivalent of three to six months’ worth of living expenses in an emergency fund.
Source: https://www.aol.com/top-10-financial-resolutions-fulfill-175425199.html
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