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by Christy Bieber | Updated July 21, 2021 - First published on Jan. 13, 2020
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Want to start the new year off right? These five smart resolutions can help.
As the start of a new decade dawns, now is the time to make some resolutions for the new year. The right money resolutions could make all the difference when it comes to improving your financial situation and ending 2020 in a better place.
While the best New Year's resolutions for you will depend on where you are in your financial life, here are five key things you may want to resolve to accomplish this year.
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If you don't already have an emergency fund with three to six months of living expenses saved, building this up should be a top 2020 goal.
A big emergency fund can protect you against any calamities that come your way, ensuring that a job loss or unexpected medical issue doesn't leave you in debt or lead to long-term financial disaster.
Decide how big you want your emergency fund to be by the end of the year and work out how much you'll need to save each month to reach that goal. Then open a high-yield savings account and set up automated monthly transfers of that amount.
Conventional wisdom says saving 10% of your income should put you on track for a secure retirement, but you'll probably need closer to 15% now. This is because lifespans are longer, housing and healthcare costs are rising faster than inflation, and returns are projected to be lower than in the past.
If you aren't yet saving 15% of your income for retirement, try to increase your savings by just a few percent in 2020. If you're currently saving 6%, for example, up your contributions to 8% now and then to 10% in mid-year. If you slowly inch up the amount you save, you can get used to living on less without making major changes to your lifestyle all at once.
And if you're lucky enough to get a raise this year, you've got it easy -- contribute your salary increase to savings right away. If you sock away your increased income before you get used to having it, you won't miss it and it will help your retirement savings account grow.
There's a big payoff to becoming debt free: You can put the money you were sending to creditors towards other financial goals. And you can stop wasting money on interest.
In 2020, make a plan to retire your high-interest consumer debt for good, or at least get it paid way down. You can do this by refinancing it to a lower interest rate using a balance transfer credit card or personal loan and then making big payments to your new creditor. Or you can make a plan to pay off your current debts. For example, you could either send extra payments each month to the debt with the smallest balance, or tackle the debt with the highest interest rate first.
The larger the extra payments you can make, the sooner your debt will be gone for good. Then you can get back this money to do better things with it.
A budget is important if you want to use your money wisely. But making a budget does you no good if you don't stick to your spending goals. To make sure you have a budget that you can follow, first track your spending for about a month. This will help you identify reasonable cuts you can make and stop you from setting goals you can't possibly attain.
You can also try out different styles of budgeting if you find you struggle to stick to your budget. If a budget that allocates all your income to specific categories is too restrictive, consider switching to a 50-30-20 budget where you save 20%, limit spending on needs to 50%, and spend the remaining 30% on wants.
Increasing your income is a great resolution because it can help with all of these other financial goals. After all, if you have more money, you can make a budget work more easily and can devote more to paying off debt, saving for retirement, and building an emergency fund.
There are lots of ways to try to increase your income. You can negotiate for a raise, apply for a higher paying job, learn new skills that will boost your earnings, or explore the possibility of a side gig.
If you succeed in getting more money coming in, make sure you put it to good use.
Accomplishing any one of these five things could leave you with a higher net worth at the end of 2020. Accomplishing them all would put you on a firm path towards financial stability. If you've already checked these items off your list, you can come up with some resolutions of your own that can help you improve your financial situation in 2020.
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