While planning your weight-loss plan to start the New Year, consider bulking up some money goals for 2016, too.
People who made financial resolutions last year were more optimistic about next year, had less debt than a year ago and felt more financially secure than those who didn’t set New Year’s goals, according to a survey earlier this month from Fidelity. Unsurprisingly, the top financial resolutions were saving more, spending less and paying off debt, the survey found.
With that in mind, here is an optional list of possible financial goals along with tips on how to achieve them.
1. Get to know your credit history. If you’re thinking of buying a house, leasing a car, renting an apartment or even getting a new job in 2016, it pays to have the best credit history possible. For lenders, credit histories (and credit scores calculated from them) determine if you get a loan and at what terms (interest rate and credit limit). Others, such as landlords or employers, use credit to determine your riskiness as a tenant or employee.
Here’s how to know what they see. You can pull your credit report for free every 12 months from each of the three major credit reporting agencies—TransUnion, Equifax and Experian—at annualcreditreport.com. Once you have it hand, check for any major mistakes—such as accounts that don’t belong to you—that could be hurting your credit profile.
The reports will also tell you the major factors hurting your credit score, such as too-high credit card balances or too many late payments. Use that information to come up with a plan to improve your credit over the year. If your credit card payments are always late, set up automatic ones from your checking account. If your balances are too high on your credit cards, commit to paying off more until you’re using only 10 percent to 15 percent of your available credit.
“Not only does a lower balance generally lead to a higher credit score, but it can also save you a ton of money because you're paying interest on a lower balance,” says John Ulzheimer, a credit expert formerly with FICO and Equifax.
2. Get on the same page with your Significant Other. If you’re married or living with someone, there’s a good chance that your finances are co-mingled, or you at least share some financial obligations, such as paying the rent. This can lead to tension in many cases. More than a third of couples said finances are the primary cause of relationship stress in a survey this year from SunTrust.
To avoid strain, get everything out in the open, such as debt, salary, credit scores and spending habits, before making a huge financial decision, so no nasty surprises come up (like getting turned down for a mortgage). Together, figure out how you will manage financial obligations (especially if your funds are separate); determine what financial goals are most important; and set up a plan to reach those goals. Make sure each person has a chance to play the household CFO, so both understand the finances. If circumstances change, such as a job loss, a new addition to the family or a major inheritance, make sure your financial plans accommodate those changes appropriately.
3. Live beneath your means. Want to improve your financial situation, but don’t know where to start? Start by tracking where your money goes and see if you’re living within your means. Many people have only a vague idea of what they spend their money on, says Jacques Boubli, vice president of The Portfolio Strategy Group in White Plains, New York.
“For rich and poor alike, spending is a key variable,” he says. “No investment advisor can asset allocate a client out of a spending problem.”
Boubli recommends recording every penny that is spent in one month in a notebook or on an Excel spreadsheet to show how you spend your money. That can give you an idea if you spend more than you make and where you can cut back.
“This exercise has proven to be illuminating,” he says. “One person who completed this exercise was so startled by and embarrassed to tell his family how much he spent on cigarettes, he quit smoking.”
4. Increase savings. It seems like a simple financial goal, but there’s so much to save for that it can be daunting: a house, retirement, college, or unexpected emergency, among other things. More than half of Americans in the Fidelity survey put saving more as their top financial goal.
That shouldn’t be surprising since several Bankrate surveys found that nearly three in ten Americans had no emergency savings, and almost a quarter are saving less for retirement or not at all compared with a year ago.
Start by maxing out your 401(k) contributions or at least contribute enough to get the full employer match if your company offers it. Determine what other goals you want to save toward. If you want to build an emergency savings, aim to sock away at least six months’ worth of expenses. If possible, have a certain amount of money direct deposited into a savings account. Or, set up automatic transfers to a savings account after each paycheck. That way, you’re not tempted to spend the money you’ve earmarked to save.
5. Whittle down debt. Debt is a heavy burden and can keep Americans from achieving life milestones. About half of homebuyers said that student loans or credit card debt delayed them from saving for a down payment, according to a report from the National Association of Realtors. Make 2016 the year your debt disappears.
Increase your payments on credit cards each month. For example, if you pay $100 each month on a $5,000 credit card balance (with a 15-percent interest rate), it will take 79 months to pay off the debt (and you’ll pay $2896 in interest). Up the payment to $200 a month and the debt will disappear in 31 months, saving you $1,863 in interest.
Consider debt consolidation as well. Homeowners may have the option to do a low-interest cash-out refinance to pay off high-interest credit card debt. Those with good credit scores could transfer their balances to a credit card with a 0-percent interest rate for a set period such as 12 months.
“Plan how much you need to pay each month during your introductory, no-interest period to pay off the debt in full,” says Ken Chaplin, senior vice president at TransUnion.
On mortgages, vow to send in one extra mortgage payment this year (or divide your mortgage payment amount by 12 and add that to each monthly payment) to shave off years on your mortgage. Add more to your student loan payment, too, to accelerate the paydown. Debt consolidation also could make sense for lowering the interest rate on your loans.
6. Review wills and beneficiaries. Go over the details of your finances. Make sure your insurance policy for your home is adequate, especially if you had any recent renovations. Review your life and disability insurance as well. Make sure the beneficiaries on insurance and retirement accounts are up to date.
Look over your investments to see if they are still allocated in the way that is best for you. Reread your will, powers of attorney and health proxies and make any necessary updates to reflect changes in family circumstances (marriages, deaths and divorces).
Do “a comprehensive review,” says Boubli. “How are you doing? In other words: resolve to stay on track.”
7. Look backward with pride. Before starting anew, congratulate yourself what you have accomplished so far, says Kathryn Hauer, a certified financial planner in Aiken, South Carolina. “I suggest to my clients that they resolve to pat themselves on the back for reaching goals, making sacrifices, sticking to their plans, or changing bad habits,” she says. “Successfully saving money is as hard and relentless as losing weight.”
Hauer notes that even if you made positive changes, events like a job loss or injury may have set you back. Acknowledge that, instead of beating yourself up. Also, learn from the strategies that didn’t work and adjust for 2016. And keep on doing the things that did work for a successful year.