New Years is the perfect time to start fresh – change those bad habits into good ones and make this year the best one yet. From healthier eating and more exercising to less spending and wiser personal finance choices, we’ve all made resolutions that we were determined to keep. Unfortunately, many times our determination runs astray and it’s only a few weeks before we end up right back where we started.
One of the main reasons this happens is the “all or nothing” thinking behind our resolutions. We want to lose weight, so we cut out every single tempting food item only to yearn for it even more than we did before. Our body needs more exercise, so we overdo it to such a degree that the muscle pain makes us dread going to the gym. We decide to stop spending our money frivolously, so we don’t make any enjoyable purchases and quickly become resentful.
It’s knowing where to draw the line and how to make resolutions specific enough to provide direction, but also lenient enough to allow us to still enjoy life.
Personal Finance Resolutions = Credit Resolutions
It might seem obvious, but it never hurts to stress this point: if you’re having any credit issues (i.e. debt, low credit score, etc.) working on your financial habits should eventually impact your credit – in a positive way. For instance: if you save more money, you can pay off your debts quicker, which in turn can increase your credit score.
Now, back to our 2017 resolution discussion. Remember, when deciding what your personal finance behavior changes will be, it’s best not to take the “all or nothing” approach. Find a compromise and work toward your goal from there. Here are a few personal finance resolutions you might want to start with…
- Spend Less Money. Okay, let’s stop right here. This is a heavy duty resolution and without specifics it can lead to an almost immediate violation of follow-through. It’s important to know how you’re currently spending your money, where it’s feasible to cut that spending and exactly the amount you want to cut.
For instance, rather than saying, “I’m going to start spending less money,” you can be more specific and pronounce, “I’m going to decrease my monthly grocery bill by $50… my monthly cell phone bill by $10… my monthly cable TV bill by $20 and my monthly dining out expenses by $45.” That’s a savings of $120 a month that you can either save in a retirement account or use to help pay down debt. Which leads us to the next resolution…
- Save More Money. Similar to your resolution to spend less money, it’s crucial to determine specifics for saving money. How much do you want to save? Will you be saving it in your 401k, a traditional IRA or a money market fund in case of emergency?
An example of a resolution that’s easier to adhere to might be: “By the end of the year, I want to have put away $2,000 into my IRA.” If you follow the example above for spending less money, you’re more than half way there! You might’ve even received a raise at work and if you were pretty much making ends meet before your raise, you can definitely put some money away for savings while continuing to make ends meet.
- Pay Off Debt. How much debt you want to pay off is, of course, dependent upon how much debt you have. Again, give yourself an actual amount you’ll want to pay off each month so that you’ll have a specific year-end goal.
It’s important to have a plan that works for you. So, if you’d rather get rid of high-interest debt first, like a mortgage or student loan, figure out how much (more) you can afford on a monthly basis and set up recurring automatic payments. Perhaps you’d get more pleasure out of paying off credit cards with low balances. Seeing a debt go down to “zero” can be a great incentive to continue on the road toward a debt-free existence.
- Create a Budget. You’ve heard it from others, and possibly yourself also, “This is the year I make a budget and stick to it!” But what happened? Did you overspend on those holiday gifts? Go out for dinner one, two or three too many times? Purchase that new cell phone because it was the most recent model? Budgets are tough to stay with unless you have help.
Place some Post-it notes in strategic locations around the house that remind you not to spend on frivolous purchases. Some of the notes can even have updated savings amounts – the money you’ve saved by not spending on things you don’t need. Of course there’s always budget tracking software that not only helps you keep track of your money, but also provides a visual financial status check so you’ll know when/if you might go over budget.
- Increase Income. Here again, specifics matter. If your resolution is to make more money, you need to lay out a plan. Money doesn’t grow on trees (at least not yet), so where’s that income boost going to come from?
Ask your boss for a raise… send out a certain number of resumes each month… open a side business that interests you… make investments that can bring in extra cash. Do some searching on the Internet about different ways to make money and then delve deeper into the search results you feel will work for you.
2017 is your opportunity to rid yourself of any financial issues you feel are negatively affecting your credit or peace of mind. Try to remember: the only thing better than reaching the goal of your New Year’s Resolutions is knowing that you had the fortitude to stick with them. Good Luck!
There are myFICO members at myFICO forum talking about their 2017 resolutions. See any you’d like to copy?