Joyce Chou

Editorial Disclosure: The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are the author’s alone.

The end of 2019 doesn’t just mean the start of a new year—even more momentously, it signals the beginning of a new decade. 

And with a whole new era on the horizon, there’s no better time to reflect on your personal development. Though you may dread it, that includes thinking about your financial situation… Is it where you’d like it to be?

If your answer is no, that’s perfectly fine; there’s always room for more growth. For starters, consider one (or a few) of these financial resolutions for the new year.

plan resolutions

You can create a budget on your own using Excel, Google Sheets, or even the classic pencil and paper. However, if crunching numbers isn’t your favorite, then try an app like YNAB or Mint

1. Create a budget

One of the best financial resolutions to start with is creating a budget to help better plan for both your short- and long-term money goals. Your budget should consider:

  • Your income – This includes any regular earnings from a full- or part-time job. Don’t include irregular streams of income like freelance work unless they’re consistent enough to plan around. 
  • Fixed expenses – These are the predictable bills you need to pay every month, like rent and electricity. Student loan and car payments also count even though you’ll eventually pay them off. 
  • Savings –  As the financial experts say, pay yourself first. In other words, remember to set aside 20% of your income for your savings. If this isn’t possible, save whatever amount you can—something is better than nothing. 
  • Discretionary expenses – Unlike fixed expenses, discretionary expenses refer to flexible, even unnecessary, costs that you could theoretically live without. For instance, that could be concert tickets or dessert. This category of your budget comes last in terms of priorities.

2. Build an emergency fund

If you were to lose your job today, would you have enough money to pay your rent and bills? Or would you have to dip into your savings?

That’s the whole point of an emergency fund. In the event of some unexpected financial disaster, this fund would cover your basic living expenses. Whether it’s a medical emergency, job loss, flood damage to your home, or something else, your emergency fund has your back. This way, other financial goals you’ve been planning for won’t be derailed.

How much money should you have in your emergency fund? The actual amount depends on the individual and their day-to-day spending habits, but a good rule of thumb is to aim for somewhere between three to six months worth of living expenses.

3. Pay off debt (or reduce it by a certain amount)

Student loans, car payments, credit card debt, or a mortgage—debt can rear its head in many forms. No matter how it appears, though, make next year the time to say goodbye. 

Calculate how much it would take to pay off your debt, and see how these regular monthly payments fit into your budget. You may not be able to eliminate your debt altogether, and that’s okay. Be realistic about what you can achieve financially rather than setting the bar too high.

If you can’t pay off all of your debt, consider setting a resolution to reduce it by a certain amount or percentage instead. For instance, you could resolve to reduce your student loan principal by 30% or 40% over the next year. 

savings

4. Open an individual retirement account (IRA)

If you don’t already have one, make it a goal to open an individual retirement account, or IRA for short. These investment accounts come with immense tax benefits—and the earlier you start contributing to one, the more you can potentially earn in them over time.

IRAs don’t come in just one shape or size. There are traditional IRAs, Roth IRAs, and even SEP IRAs for the self-employed. The eligibility requirements for each type differ, and while that may make deciding which one to open confusing, an IRA is still absolutely worth it. Consider meeting with a financial planner to learn about which type is best for you.

5. Maximize your HSA contributions

If your health insurance plan includes a health savings account (HSA), consider making a resolution to maximize your contributions. 

This underrated financial account is a secret weapon for growing your retirement savings. How so? Any interest earned on your HSA contributions grows tax-free, and these funds roll over from year to year. In other words, with the help of compound interest, you could amass a sizeable fund just for your future healthcare in the long term. 

Even better, some employers match their employees’ HSA contributions to a certain point or contribute a set amount. That’s free money just for your health! If you’re not sure whether your company offers such a perk, check with your HR department. 

6. Create a plan for big future expenses

Think of the big financial goals you’d like to reach. That might be:

  • Going back to school
  • Buying a home
  • Planning a wedding
  • Traveling around the world
financial plan

Dreaming isn’t enough to transform these goals into reality—you also need to plan for them. However, you may be wondering: what distinguishes this plan from a budget?

A budget helps you take a more granular look at your expenses, like how much you should allocate for groceries, for example. But creating a plan for your major upcoming expenses means thinking of the big picture, which can in turn, influence how you set up your budget. 

To plan for larger expenses, consider:

  • What are your big financial goals?
  • Ideally, when do you want to achieve them by? Is there a deadline? 
  • Can you reasonably achieve your goal by this time? If not, when?
  • How much should you start setting aside in order to reach your goals on time?

Without an overarching financial plan, you may as well be saving aimlessly—or not saving enough. Put together a plan so that by the end of next year, you’ll be one step (or many more) closer to reaching your goals.

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