At the beginning of a new year, many people think about resolutions for their personal health and fitness. But is your bank account just as healthy?
We’ve selected our top four financial wellness resolutions to try this year. They’re ones you’ll want to keep doing all year round!
Financial Resolution #1: Pay Yourself First
If you really want to prioritize saving, make sure to set aside money each month – no ifs, ands, or buts. It can be money for an emergency fund, an investment you want to make for your retirement account, or a large purchase goal, like a house.
With this in mind, create a plan for how much you want to save each month. Paying yourself first means that saving is an obligation, not an option. Think of it like another bill you have to pay – the most important one!
Determine how much of your monthly income you want to set aside for yourself. Then, make it automatic so you never have to think twice about it. Whether it’s a direct deposit into a certain savings account or an automatic contribution toward your retirement fund, paying yourself first brings big dividends over time. And speaking of retirement funds…
Financial Resolution #2: Save for Retirement
Even if your retirement is decades away, it’s never too early to start saving. In fact, the earlier you start, the bigger the benefits due to the power of compounding interest.
If you’re already contributing through your employer’s retirement option, great! And if your employer offers a matching contribution, make sure you’re contributing the maximum amount they’ll match – otherwise you’re leaving money on the table.
In addition to a retirement plan through your employer, learn about contributing to some type of an IRA – either Roth or traditional.
- A Roth IRA means that your contribution is taxed upfront, at the current rate. When you withdraw it at retirement, you won’t pay taxes on it.
- In a traditional IRA, it’s the opposite – contributions are added tax-free, but you’ll pay taxes when you withdraw them.
Each type of account has various pros and cons, so talk with your financial institution to help you understand which is right for you.
It’s never too early to start saving, whether it’s for retirement or an emergency fund.
Financial Resolution #3: Create an Emergency Fund
While planning for the distant future is important, don’t forget about planning for the more immediate future with an emergency fund. This is a source of money that should be available at any time to cover an unexpected expense — anything from a medical bill to a car repair to losing your job.
Of course, hopefully you won’t have to use the fund. But if you have one, you can feel peace of mind that you won’t need to worry about money on top of another potential crisis. So don’t dip into the fund, no matter how tempting (and keep it separate from a rainy-day fund or savings for another goal).
How much to save? It depends on your current income and expenses. Generally, experts advise saving up about three-to-six months’ worth of expenses. If that sounds like a lot, don’t worry — just start small. Anything you can put toward your emergency fund is better than nothing.
Financial Resolution #4: Control Debt
If you have a large amount of debt, whether from credit cards, student loans, or another source, you’ll want to focus on first building a realistic budget with money allocated toward paying off that debt, according to Investopedia. Once you see where your money is going, you can trim other expenses and funnel more money toward what’s important.
From there, start paying off your debts by focusing on the highest-interest ones first. By paying extra interest each month, you’re throwing money away fast, so get these accounts off your plate pronto.
Even if you have less (or no) debt, make sure to keep it that way by paying accounts on time, keeping spending in check, and consistently living beneath your means. Just because you have the money doesn’t mean it needs to be spent. Remember the tips of paying yourself first and focusing on future needs, not just today’s wants.
Getting out of debt is a challenging process that can take time and a new way of thinking. Dedicate this year to being the one where you figure out a process and strategy that works to help you become debt-free.
More Financial Tips from Mercer Savings Bank
Keep your finances looking good all year round with savings tips from Mercer Bank. Visit our blog to read more and get ideas for budgeting, managing your money, and spending smart.