While most resolutioners are focusing on weight loss and fitness, you have another type of health in mind for the New Year: financial health. Unfortunately, too often resolutioners make vague goals like “save more” or “increase income.” If you truly want to make a difference in your finances in 2019, these are the goals you need to set — and the steps you need to take to get you there.
Pay off Credit Card Debt
On average, U.S. households at the start of 2019 have about $5,700 in credit card debt — with no-income houses boasting average debt upwards of $10,000 and high-earning households hovering around $8,000 in debt. While that isn’t even close to the average student loan debt, it is a sizeable amount of money that would be better spent elsewhere. That’s why your first and foremost financial resolution for 2019 should be to pay off your credit cards, so you can focus on other sources of debt in future years and generally reduce your expenses overall.
There are two primary strategies for paying down debt:
- The snowball method. You pay the accounts with the smallest balances first, so you experience small victories and continue paying down your debt.
- The avalanche method. You pay the accounts with the highest interest rates first, which reduces the growth of your debt and makes it easier to pay down as you go.
You should choose the strategy that best applies to your situation and make a plan for making payments until you are credit card debt–free.
Add 20 Points to Your Credit Score
It’s always possible to increase your credit score — even if you are already in a coveted super-800 position. A better credit score will win you better interest rates and limits on credit cards, mortgages, auto loans and other loans as well as a free pass when it comes to contracts with security deposits and job approvals. Unfortunately, there are no fast fixes for credit scores; the nature of the number is measuring your long-term financial behavior. Thus, you need to be patient.
Here are a few tricks for increasing your score a moderate amount over the coming year:
- Reduce your debt.
- Pay bills on time and in full.
- Don’t open many new credit accounts.
- Reduce your reliance on credit.
- Diversify your credit.
Monitor Your Credit Report
You should have a personal checking accountinto which you can deposit your wages and from which you can pay major bills. However, it is smart to avoid using a debit card linked to your checking account online or when you travel because if a thief steals the card info and takes money from that account, you probably won’t get it back.
Credit cards are more secure for a few reasons. First, they have limits, so criminals can’t make unlimited purchases. Secondly, you can dispute transactions more easily on your credit account. Finally, you can check your credit reports for signs of fraud, including names, social security numbers and accounts that don’t belong to you. You can file a correction with one of the three credit bureaus and maintain the health of your credit score — but only if you are in the habit of monitoring your credit report.
Build a Budget (and Stick to It)
The fastest way to increase your income is to reduce your needless spending, and the best way to reduce your spending is to adhere tightly to a well-defined budget. Your first step in building a budget is understanding your current spending habits. For at least two weeks — and as long as a month — keep a diary of everything you spend money on, and try to avoid modifying your behavior or lying in your notes. You will use this information to form the foundation of your budget.
Next, highlight your essential expenditures, like rent, debt payments, utilities and insurance. Then, allow yourself some “fun” money — but you shouldn’t give yourself the rest of your income to play with. Instead, you should set aside some of that money for emergency, retirement or other savings efforts. To force yourself to stick to your budget, you might take out your spending money in cash and keep it in carefully marked envelopes. Resist the urge to dip into your savings accounts or sneak some cash from other envelopes; your goal is financial health, and that means financial honesty, too.
Identify Your Long-term Financial Goals
Finally, your last resolution for 2019 shouldn’t take much time, but it will take some effort. Long-term financial goals will guide how you spend and save during the course of this year and years to come. Thus, as soon as possible, you should carve out about an hour to sit and reflect on what you want from your finances.
Everyone’s goals will be different, but here are some good examples to inspire you:
- Buy a housein a certain price range and pay it off in 10 years.
- Accrue a college fund for any children existing or anticipated.
- Build a retirement account that will ensure financial security in old age.
This year has just begun, which means you still have 12 months to improve your finances. Even better, you can make financial resolutions alongside your physical fitness goals. Make 2019 the year of overall health, and you’ll be happy for years to come.