Financial New Year’s Resolutions

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Written by: Deborah Cartisser

January is the time for new resolutions and setting goals to enhance our lives, physically, emotionally, mentally and even financially.  If you haven’t listed fiscal fitness among your resolutions, perhaps some of the suggestions that follow will enhance your financial well-being.  As you think about your current situation, where do you need to focus?  For some it’s debt reduction, others realize they can afford to save more and some simply need to be better organized.

Where Does Your Money Go?

If you don’t have a clear understanding of where your money goes, start tracking it.  Apps like Mint, PocketGuard or several others can help categorize your expenses.  Your bank may generate free spending reports on its website that you an export to a spreadsheet.  Or you can use a credit card that categorizes spending with a recap on your statement.  If you switch from a debit to a credit card to track expenses, be sure to pay it down as soon as possible.  See if there are areas where you can make some changes, such as dining out less frequently.  Then devise a plan to put that money to work by reducing debt or adding to long term savings.  Set up automated payments or contributions to savings so it takes place automatically.

List Your Goals

Write down your long and short-term goals that require funding and then prioritize them.  You may want to open separate accounts for some of the goals, so the saving is directed toward a specific project and kept separate from other long-term savings.  If you get a raise, decide in advance where the extra money will go before you get your first paycheck.  Writing down realistic goals will help you to make better financial choices and create a higher likelihood of reaching them.

Pay Down Debt

List all of your debts, from mortgage to credit cards to personal loans and create a spreadsheet showing the payment amount, interest rate and years until repayment is complete.  If you are only making the minimum payment, it may take decades to retire the debt.  Look at your budget and determine how much surplus you have.  Pay down the highest interest rates first and make extra principal payments when you can.

Rate Shop for Credit Cards

Reviewing your credit cards periodically will help to ensure you have the best deal.  Simply switching from using a debit card to a credit card that earns cash back or mileage points may benefit you, provided you pay it off right away.  If you have credit card debt, look for lower rate cards or cards that offer a grace period of no interest when you transfer the balance from another card. Sites like www.nerdwallet.com can help you shop for better cards.  Look for cards with benefits that you will use and compare both the offering and the interest rates.  Automate all bill payments so you don’t get hit with penalties or fees.

Put Cash to Work

Gone are the days when your cash earned nothing sitting in your bank account.  If you have cash on hand for an upcoming purchase, like a home, consider investing in U.S. Treasury bills or a CD.  Do some rate shopping to find the best rate and be sure the maturity date of the CD lines up with the date you need to withdraw your money.

Emergency Fund

Having cash on hand for life’s emergencies is something we should all have.  Since we can’t plan for everything, maintaining an account with 3-6 months of cash is important.  Keep it in an account separate from your checking account so it’s not easy to dip into.

Retirement savings

If your company retirement savings plan offers a matching contribution, be sure you are contributing enough to capture all of the match.  It’s free money.  Ideally, contributing the maximum amount to your 401(k) is best, which is $22,500 for 2023.  If over age 50, you can contribute an additional $7,500.  For IRA and ROTH IRA accounts, the limit is $6,500 with an additional $1,000 for those over 50.  Keep in mind that is a combined limit for both accounts.  The rule of thumb is to try to save at least 15% per year and more if you can.  If you are self employed and can afford to save more than the IRA account limits, look at setting up a SEP IRA, where the contribution limit is $66,000 or 25% of your salary.  Tax free savings over decades can be quite significant, so don’t miss out.

Maximize your Health Savings Account

If you have a high deductible health plan, you are eligible to contribute to a HSA account, set one up and use it as a long term savings account.  Note an HSA is different from a FSA account in that you can keep funds in the HSA with no requirement to spend it by the end of the year.  Most people contribute annually and use it for medical expenses, new glasses, etc.  Did you know that this I can be a tax-free savings vehicle?  Scan your receipts for all eligible expenses and save them on your computer.  Continue to contribute each year and you can withdraw funds without income tax or penalty in retirement as long as you match up the distributions with the receipts you saved.  Invest some of the savings in a long-term investment strategy.  The HSA offers triple savings: It uses pre-tax dollars, with no tax on income earned and no tax on the withdrawal of funds.

Start today. Work with the tools you have now, formulate a plan and continue to revise it as your situation changes.  Simply taking the time to focus on your finances will give you a better command of your present and your future.

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