It’s a new year and with it comes the promises of new beginnings and self-improvement. Along with adopting healthier habits, a large majority of Americans are looking to improve their bank accounts. According to Principal Financial, 80 percent of Americans are making money-related resolutions. Saving more each month, paying off credit card debt and saving for retirement are some of the top financial New Year’s resolutions for 2018.
If you are looking to create a budget or get out of debt in the new year, BBB has tips and tools to help you get on the right track to a better financial future:
• Calculate your income. You can’t properly set a financial resolution unless you know what you’re working with. Calculate your monthly net income, which is after taxes, so you can set a clear budget with exactly what you are bringing home.
• Track your spending. Whether you prefer an app on your phone, computer software, or simply a notebook to jot down your expenses, keeping track is critical. It helps you see where you are actually spending your money, rather than where you think you are.
• Pay down debt. One method is to pay off the credit account or loan with the highest interest rate first (the “ladder method”). Another is to pay off the smallest balance first so you feel a greater sense of accomplishment (the “snowball method”). Use whichever method works best for you. The important thing is that you are doing it. Also, call your credit card company and ask if they will lower your interest rate. Some lenders will agree just to keep you from transferring your debt to another lender with better terms. If you shave even a few percentage points off your rate, it can save you thousands and help pay down your balances faster.
• Pay bills on time. Consider online bill-paying that eliminates writing checks, buying stamps, etc. Automatic payments can be scheduled ahead of time and can help you avoid late fees and penalties for missed payments.
• Save for emergencies. Emergencies – car or home repair, unexpected medical expenses, job loss – can blow your budget. Financial experts suggest an emergency fund of 3-6 months’ living expenses. If that is too ambitious, start smaller and build up.
• Contribute to your retirement. Make sure you are contributing enough to your 401k plan to get the full matching contribution from your employer. If you get a raise at your job, try and put that extra money aside into your retirement account. You were able to survive on that income for this long, so you won’t miss that extra cash and your retirement account will greatly benefit.
• Keep track of your credit score. Credit scores are used by lenders to make decisions about whether to offer you credit, and what those terms (interest or down payment) will be. Your credit score is a decision-making tool that lenders use to help them anticipate how likely you are to repay your loan on time.
You can find additional resources, including an interactive worksheet to help you start your budget, at BBB.org.