The start of the new year means it’s time for many people to make their New Year’s resolutions. Maybe you want to improve your physical fitness, sleep more or eat better (especially after all that food during the holidays). This year, we at SmartAsset challenge you consider your financial fitness when you make your New Year’s resolutions.
And that doesn’t mean you need to drastically change your habits or the way you live. A small change, like switching to a high-interest savings account, could help you save hundreds of dollars every year. Here are some financial goals that will ensure you have a financially fit year.
1. Understand Your Credit
Your credit impacts just about every aspect of your life. It has a big part in deciding whether you can get a loan, mortgage, apartment, car or credit card. That means you can really help yourself by keeping your credit and your credit score are as good as possible.
Start by checking your credit score and reading your credit reports. Everyone has three credit reports, one from each of the three national credit bureaus, Equifax, Experian and TransUnion. These reports include your personal information as well as information on your credit history. Companies create credit scores (like the FICO Score) using information from your credit report. When a lender or creditor does a credit check, they’re almost always using your credit score to help make a decision.
Because so many people use it for lending decisions, you should try to maintain a high credit score. If your score isn’t very high, don’t despair. You can take some simple steps to improve it.
The first thing you should do is read your credit reports. Make sure that everything in them is correct and contact the credit bureau if you find any mistakes. You wouldn’t want your credit score to go down just because a company reported some incorrect or old information.
The best way to improve your credit score is to pay your bills in full and on time. Try to avoid making any late payments because they will ding your score.They’ll also leave you paying late fees. If you can’t pay your bill in full, pay as much as you can and always make at least the minimum payment.
Keep in mind that it isn’t worth trying to get a perfect credit score. Just make sure that your score is always moving in the right direction.
2. Understand Your Expenses
It’s time for everyone’s favorite word: budget! You may not enjoy talking about budgets, but a budget a useful tool because it helps you track how much money you’re spending. Many people have a hard time saving money, but they never kick their spending habits because they don’t even realize how much they’re spending.
If you want to save more money in the upcoming year, do yourself a favor and track where your money is going. There’s nothing wrong with spending money on things you care about but you should be conscious of what you spend. You don’t want to look back at the end of the month to find that you spent $200 on ice cream even though you were trying to eat healthier.
To start, figure out how much you spend each month on essentials like rent, groceries and travel to and from work. Then take a look at all the other money you spend. What are you spending on? Does your money go toward things you truly care about? Does it leave you with any savings?
Once you know how much you spend each month and how much you’re saving, start to make a plan for how you will spend your money. If you need help getting started, you might want to try this simple 50/30/20 budget plan.
3. Understand Your Insurance
Do you currently have life insurance? If not, maybe it’s time to consider it. While it isn’t necessary, life insurance can put your beneficiaries in a good financial situation even after you die. Maybe you have already signed up for life insurance through your employer but you don’t know how much it’s worth. Now is a great time to find out. Once you know your plan’s value, decide if it’s the right amount of coverage for you. Here’s a simple calculator to help you decide how much life insurance you need.
Don’t stop at your life insurance though. Do you have homeowner’s or renter’s insurance? They can provide a nice safety net in case of accidents. How much are you currently spending on car insurance? Maybe it’s time to check for new plans that have the coverage you need for the lowest price.
Use the start of the new year as a chance to make sure you know what kind of insurance coverage you have and what kind of coverage you need. Talk to any beneficiaries and make sure that they understand what they will need to do if something happens to you.
4. Understand Your Retirement Options
Here’s a troubling piece of data: The average American has no retirement savings.
Many people have grand ideas for how they will enjoy their golden years. Maybe you want to travel or volunteer more. Maybe you want to watch theater and play with your grandchildren. Regardless of your exact plans, you will need money. That leaves you in a difficult position if you haven’t built up any retirement savings.
Use the start of this new year to take stock of your retirement savings. Figure out how much you already have and then figure out how much you need to retire comfortably.
Once you know how much you need, you can start to plan how you will meet your goals. Maybe you need to start putting more money into your employer’s 401(k) account. (Tip: You should always try to contribute enough to cover an employer match.) You may also want to save up for retirement on your own through a traditional IRA of Roth IRA.
If you feel a bit overwhelmed by the retirement savings options, you’re not alone. There are a lot of ways to save and things only get more complicated if you decide that you want to start investing your money (which is a great way to build wealth if done properly).
Give yourself a present to start the year and find a financial advisor who can hep you to make sense of your retirement plan. A financial advisor is an expert who can help you to create reasonable goals no matter how much you need to save or where you are in your life.
The Bottom Line
OK, we cheated a little bit. Each of these resolutions contains mini-resolutions. We figure it’ll go something like this: Once you know your credit score, you’ll be motivated to raise it. Once you see how much you’re spending, you’ll notice areas where you can trim the fat. Once you consider your insurance coverage, you’ll take action if you have too much or too little. And once you understand your retirement goals, you’ll me motivated to help yourself meet them. You may not be able to achieve all of these goals at beginning of the year. That’s OK. These things take time. But if you put in a little bit of work now, you will be able to look back next New Year’s Eve and say that you really helped yourself to get financially fit this year!
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