New Year, Fresh Financial Start – 6 Financial Tasks to Tackle

Kim Tran

Personal Finance,

It’s the start of a new year—have you thought about what financial improvements you’d like to make? Top resolutions for money include saving more (53 percent), pay down debt (51 percent), and spend less (35 percent). 

A study revealed that people who set goals and write them down are 1.2 to 1.4 times more likely to accomplish them than those who don’t.

Now is the best time to write down your goals and describe in detail what an accomplished goal looks like. 

Here are six financial tasks to help you get started in the new year.

1. Create a debt payoff plan

Make a plan to strategically pay off your debt in a certain time frame. If you have credit card debt with high interest, start there. 

Save money on interest by consolidating your debt into one with lower interest. Consider using Upstart to get your debt payoff plan started. Upstart offers personal loans with rates that may be lower than credit card rates. 

By consolidating your debt with Upstart, you’ll have one payment each month. There’s also no prepayment penalty if you decide to pay the loan off early. 

2. Set up a monthly budget and track every penny 

You know you need a budget but most likely don’t have one. A survey revealed that 93 percent of Americans believe in having a budget but only 33 percent actually have one. 

Start by listing your monthly spending and take-home pay from the last three months so you can see all of those numbers in one place. These include:

  • Rent/mortgage
  • Utilities/cell phone/WiFi
  • Car payments
  • Student loan(s)
  • Memberships/subscriptions
  • Groceries
  • Shopping/restaurants/entertainment

After you write down your income and expenses, consider using a free online tool to help you keep a watchful eye over your money. These tools allow you to link all of your accounts in one place so you can easily track your spending and saving.

Setting this budget will help you:

  • Understand where your money is going each month
  • Provide a foundation for how to save more and spend less
  • Control of your money so you can meet your goals

After you’ve created your budget, it’s time to start saving. If you’re currently saving (at a traditional bank) but don’t have an online savings account, consider opening one. 

Not only do many online savings accounts have higher interest rates, but they’re often free to open. Digital banks make it easy to sign up online and can allow you to create “sub-savings accounts” that you can label specifically for a goal, such as moving or your next vacation. Then it’s a matter of setting up automatic deposits to make the process even easier. 

A budget is simply a detailed breakdown of how much you’re spending relative to what you’re earning. It can be an eye opener for small expenses that may add up and eat into your spending each month. Ultimately, a budget should help you build a better relationship with money.

3. Save for an emergency fund

An emergency fund is a safety net so you don’t get financially crushed by unexpected events such as getting laid off, expensive dental work, or car troubles. Having the funds is crucial so you don’t have to use your credit cards (and rack up debt), or borrow money from family or friends. 

Two factors you need to save for an emergency fund include forming the habit and time. If money is tight you can start in small amounts. Do it consistently and increase the amount over time. 

4. Start investing for the long term

Do you know how much you’ll need when you retire? 

Vanguard founder Jack Bogle stresses that investing for the long term through low-fee index funds is a great way to grow your money. Billionaire Warren Buffet believes an index portfolio of 90 percent S&P 500 and 10 percent Treasurys is the best bet for most investors.

Both have wisely advised to keep it simple and with index funds, as they generate the highest returns for the lowest risk.

Here are three investment accounts to consider for growing your money, long-term:

Traditional 401(k)

A 401(k) is a savings plan offered by your employer that allows you to take a portion of your paycheck and invest it, while deferring the income taxes on the saved money until you withdraw the money at retirement.

If your employer offers a 401(k), consider signing up. If you’re already making contributions, consider increasing the amount or max it out. In 2020, you can contribute up to $19,500.  The best way to invest in a 401(k) is to make sure you’re contributing enough to get your employer match. Employer matching can be from a few percentages to 100 percent. This is free money!

Roth IRA

A Roth IRA is an individual retirement account that allows you to save after-tax income of $6,000 per year. If you’re over the age of 50, you can contribute $7,000.

The earnings on a Roth IRA are tax-free and withdrawals are also tax-free, as long as you make the withdrawals after the age of 59 ½.

Traditional IRA

This is slightly different than a Roth IRA, since your contributions may qualify for a deduction on your tax return. Your earnings may grow tax-deferred until you withdraw them at retirement. 

Investors who choose a Traditional IRA believe they’ll be in a lower tax bracket upon retirement. This means paying taxes on a Traditional IRA may cost less. 

5. Examine last year’s spending habits and make improvements

Go through your online statements and previous year’s budget to see how much you earned and how much you spent. 

Look through categories of spending, such as groceries, travel, shopping, or restaurants. This helps you figure out how much you can cut back and set limits. For example, if you spent an average of $400 in restaurants each month, try cutting that amount in half. Put the extra $200 into savings. 

Set measurable goals for how much you’d like to save. This helps you gain clarity and may keep you motivated to continue saving and spending less. Examples can include: 

  • Saving $500 each month for your emergency fund so you can have $6,000 by the end of 2020
  • Paying off $2,500 in high-interest credit card debt

A few tangible ways you can jumpstart your spending and saving habits:

  • Pay off your debt. Start with credit cards, then work your way down to paying off car loans, student loans or any personal loans. 
  • Try a spending freeze. Don’t spend anything that isn’t a crucial part of your monthly expenses, such as bills or groceries. See if you can make it 30 days without buying anything you don’t need. 
  • Earn more money. Consider picking up a side hustle such as babysitting on weekends, freelance writing, tutoring, or driving for a ride sharing company. 

6. Automate your savings

After you’ve created your budget, it’s time to start saving. If you’re currently saving at a traditional bank but don’t have an online savings account, consider opening one to reap additional benefits. Plus, if the savings account is out of reach, you may be less likely to dip into it. Setting up automatic deposits can make the process even easier. 

Benefits of automating your savings:

  • Lessen the risk and temptation of spending
  • Save time while saving more over time

What tasks will you tackle first?

Finding ways to improve your financial situation doesn’t need to be done all at once. Start with easy wins, such as signing up for your company’s 401(k) plan or increasing your contributions. 

From there, start looking through your spending habits and see what improvements you can make this year, such as cutting expenses or increasing your income. 

Check your finances weekly to see how you’re doing. Make small adjustments to stay on track throughout the year so you can reach your goals and continue to improve your finances.  

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