The New Year is upon us, and many Americans will boast ambitious resolutions: they may want to gain 15 pounds of muscle at the gym, get a full eight hours of sleep every night or finally learn how to play the piano. But lofty goals may lead to fewer accomplishments — according to a report from U.S. News, 80% of New Year’s resolutions fail by February.
This year, instead of making bold resolutions, why not try making some savvy money decisions that are well within your grasp.
Here are seven of the smartest money moves you can make this January:
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1. Find a budget you like and commit to it
Budgeting gives you a clearer picture of how you earn, spend and save your money. The benefits of budgeting seem apparent, but only 41% of Americans utilize one, according to a 2016 U.S. Bank study.
Try out one of the budgets in this table to get your year started right.
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2. Pay off your credit card statement balance every month
This may feel overly ambitious, especially if you racked up some serious credit card debt over the holidays, but this is a money move that you’ll end up very happy about. When you don’t carry a credit card balance from month to month, you get to reap rewards without paying any interest whatsoever. And it just doesn’t make sense to pay interest on things you already bought just because you used a credit card.
If you can’t pay the balance, make more than the minimum payment
“Minimum payment” is a bit misleading, because you’ll still pay high credit card interest rates even if you make the minimum payment on time every month. It may seem obvious, but a good rule of thumb is not to charge your credit card for more than you can pay.
If you already have a hard time paying off your credit card every month, then don’t use the card until you’ve whittled down the balance to an amount you can clear every month.
Consider opening a debt consolidation loan to manage uncontrollable credit card debt
If 2020 is the year to pay down your credit cards, then you might consider opening a debt consolidation loan to save on interest and put all your bills into one monthly payment. This isn’t a temporary fix, but a debt management strategy. That means that you can’t just take out the loan and forget about it; it’s important to pay it on time every month to get your finances back on track.
See the table to determine if a debt consolidation loan could help you in the new year.
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3. Track your spending to see how you spend your money
Technology may make it easier than ever to spend money with the click of a button. Just consider Amazon’s 1-click shopping or Instagram’s in-app shopping feature, but that same technology makes tracking your spending like second nature.
Budget tracking apps like Wally and Mint connect to your bank accounts, and sort all of your purchases into categories the minute you swipe your card. You can see how much money you spend on gas, groceries and even coffee without having to sift through your bank statements and sort purchases yourself.
As an added bonus, and even an incentive, many of these apps are free to download. Compare some of the most popular budgeting apps available to download below:
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4. Contribute to your emergency fund
Most Americans couldn’t cover a $1,000 emergency with cash. That puts them at risk of having to depend on credit in order to handle these unexpected costs.
Personal finance experts suggest that you should have three to six months’ worth of monthly expenses in your emergency fund. That may seem unattainable at first glance, but use these tips to put more toward your emergency savings:
- Set up automatic contributions to your savings account.
- Increase your savings contributions each month with manageable increments you implement each month.
- Put your emergency fund in a high-yield savings account to help it grow faster.
How much you should save each month to create an emergency fund
Let’s say that between a mortgage, auto loan and insurance, groceries, utility bills and other necessary expenses, you spend about $2,500 per month. Based on the aforementioned rule of thumb about emergency funds, that means you should have anywhere from $7,500 to $15,000 saved up in your emergency fund. (We’ll go with $8,000 for the purpose of this exercise, since saving up $15,000 in one year — more than $1,000 per month — is a likely stretch for the average family.)
Use this schedule to determine what your emergency fund might look like to $8,000 in 2020:
- January through March: $2,000
- April through June: $4,000
- July through September: $6,000
- October through December: $8,000
Even this plan is ambitious, as you’d have to pay around $670 each month to reach your goal. You might consider splitting the burden with your spouse to create a joint household emergency fund that can cover your shared bills if needed. Or, you could make this a long-term goal of having a functional emergency fund by 2022.
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5. Increase your retirement contributions
Many Americans don’t think about contributing to their retirement accounts until it’s too late. It can seem impossible just to make ends meet, let alone save for retirement, especially when you’re living paycheck-to-paycheck. But without a healthy retirement account, you’ll be left working well past typical retirement age.
According to retirement plan provider T. Rowe Price, you should keep track of your retirement savings based on the above milestones.
There’s a major disconnect between what workers have saved for retirement and what they think they should have saved for retirement. Americans reported that they would need to have saved $250,000 or more in their retirement fund by the time they’re 45-59 years old in order to feel on track for retirement, but only 27% of individuals in that age group said they actually had that much saved up, according to a May 2019 report from the Federal Reserve.
This isn’t meant to be a depressing reality, but more of a wake-up call. The time is always right to increase your retirement contributions. Try upping your contributions in small increments (like 1% to 2% of your paycheck). If after a few months it doesn’t make a big difference in your monthly budget, then you can increase your contributions another 1% or 2%, until you can’t anymore (or until you hit the $19,500 yearly limit for workers under 50 starting in 2020).
And if you get a raise, consider using that extra income to contribute more to your 401(k).
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6. Grow your savings with higher than average interest rates
Banks have abysmally low interest rates on their savings accounts — in fact, most institutions grow your savings with just 0.01% interest. Something is better than nothing, but your savings could be working a lot harder for you.
When you’re looking for a place to invest your savings, you’ll want to find a system that allows you to easily liquidate your funds so you can use your savings in case of an emergency. You’ll also want to keep risk low ー this is your savings account, not necessarily an investment account. You could consider these options for growing your savings:
- High-yield savings accounts: As the name implies, this is a savings account that has a higher interest rate for deposits than a traditional savings account. Whereas the typical savings account interest rate is as low as 0.01%, the rates for high-yield savings accounts can be as high as 1.85%.
- Certificates of deposit: A CD requires that you lock your money in an account for a set amount of time, from three months to five years, typically. The longer the CD, the higher the interest rate. The downside here is that you won’t have access to your savings, so this isn’t a good option for an emergency fund.
- Money market accounts: A hybrid between a bank account and a certificate of deposit, a money market account is a safe place to store your money and accrue interest at higher-than-typical interest rates. MMAs come with check-writing privileges, but transactions are typically limited to six per month. Plus, you may be subject to fees.
You might also consider investing in Treasury Bills, also known as T-Bills, which are short-term securities issued by the U.S. government. They’re bought at less-than face value, and they’re worth face value when they mature. You won’t get rich from T-Bills, but you also won’t risk losing any money.
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7. Monitor and build your credit
A higher credit score can help you reach a multitude of financial goals. When your credit profile is more favorable, you’ll pay less toward interest and you can pay more toward your debts. You’ll have access to more types of rewards credit cards and even balance-transfer cards with promotional 0% APR periods.
The first step to building your credit is knowing where you stand. You’re entitled to one free credit report every year from each of the three national credit reporting bureaus: Equifax, Transunion and Experian. Use the official website www.AnnualCreditReport.com to request yours.