The start of a new year is a great time to update your financial goals and give your budget a second look. If you didn’t save as much as you had hoped to in 2017 – or you’ve racked up holiday debt – making some financial resolutions can help you get back on track. As you’re reviewing your spending habits and expenses, here are three money moves you might want to make.
1. Prioritize Your Emergency Fund
An emergency fund can be your best friend when disasters strike. If your heating system bites the dust in the middle of the winter or April showers cause your roof to leak, having some cash in the bank can keep you from having to cover the damages using loans or credit cards.
If your emergency fund is on the small side (or worse, nonexistent), whipping it into shape belongs at the top of your to-do list. You can begin by setting a savings goal. For example, you could initially aim to save $1,000. Then you could work on bumping that up to an amount equal to three to six months’ worth of expenses.
Depending on how you manage your finances, you may need to break down your bigger savings goals into smaller ones that you can hit on a monthly basis. You may only be able to save $25 or $50 every month, but the key is to be consistent. If you’re struggling to get into the habit of saving money regularly, you can have part of your paycheck automatically deposited into your savings account.
2. Track Your Spending
One of the biggest budgeting blunders you can make is not knowing where your money’s going. Aside from knowing how much you’re spending on essentials like housing, utilities and transportation, it’s important to keep an eye on how much money is going toward non-essential expenses, like movie tickets, clothing and fast food.
You can track your expenses by listing them in a notebook. Or you can find an app to do that for you. Apps like Level Money and Mint, for example, make it easy to see what you’re spending money on.
3. Switch up Your Payment Methods
Using a credit card can be a convenient way to pay for purchases. But credit cards can be dangerous, especially if you fall into the habit of thinking it’s okay to spend more than you need to. Paying with a debit card could also get you in trouble if you often overspend.
Paying for everything with cash for the first few months of the new year might help you reign in your spending. Having to physically hand over money tends to be more painful than swiping or dipping a piece of plastic. Setting aside a certain amount of cash for non-essential items may force you to think twice about what you’re doing with your dollars and cents.
Each of these resolutions is based on the assumption that you have a budget. If you don’t have one, it’s best to create a spending plan before setting other financial goals.
To get started, you can review your pay stubs and your bank statements to get an idea of how much money you have coming in and going out. Then you can fine-tune your budget by adding up all of your debts and estimating how much you can spend on discretionary items. Finally, you can decide how much you can afford to save, based on whether you’re trying to prepare for retirement or make a major purchase.
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