Make this year the year you finally stick to your New Year’s resolution.
the main points
- Creating specific financial goals for 2023 can help keep you motivated.
- Building a suitable emergency fund should be at the top of your list if you don’t already have an account.
- The best place to get your extra cash depends on your priorities.
Being better with money is a common New Year’s resolution, but it’s also a bit of a mystery. If you want to increase your odds of success, it helps to be more specific about what you hope to achieve this year.
You may already have some ideas about what those goals should be, but here are some others worth considering. Taking on one of these tasks in 2023 can go a long way toward improving your finances.
1. Create an emergency fund
Creating an emergency fund should be everyone’s top financial priority because without it, you could end up in serious financial trouble when an unexpected bill arrives. Ideally, you want to have at least three months of living expenses on hand, but some people like to save six or even 12 months of expenses.
You should keep this money in a high-yield savings account where it is easy to access. You do not want to invest this money because you never know when you will need to withdraw it. If the stock market is down at that time, you may have to sell your investment at a loss and still be able to sell. You will not have this risk with a savings account.
Remember, this money is for emergencies, not planned expenses. If you know you have expenses coming up, you should save for this separately. And when you tap into your emergency fund, try to replenish it as soon as possible. Don’t forget to review your finances annually to see if you need to increase or decrease it to keep up with changes in inflation rates and lifestyle.
2. Pay off high-interest debt
High-interest debt, such as a payday loan or credit card debt, can quickly spiral out of control. What may start with a few hundred dollars can balloon to several thousand dollars over the course of a few months. You’ll have to set aside more and more of your monthly income to pay off debt to keep up, and you can incur additional fees for late fees.
It’s a vicious cycle, but there are ways to end it. Some people prefer to cut back on other expenses and put their extra money toward paying down their debt. One popular way to do this with credit cards is known as the debt avalanche method. This is where you make the minimum monthly payment on all of your cards, and then put your remaining money into the card at the highest annual percentage rate (APR). When that is paid off, you move to the card with the next highest APR, and so on.
Other people do a better job of paying off debt if they use a balance transfer card. These are credit cards that offer an introductory APR of 0% for anywhere from a few months to a few years. Since your balance will not accrue interest initially, any money you pay will go towards reducing your debt. However, there is usually a one-time fee associated with balance transfers.
Personal loans are another option for those with credit card debt, and they also work for those with payday loans or other types of debt. These are installment loans, so you will have a predictable monthly payment. You don’t need to put up any collateral, but for this reason, interest rates on personal loans tend to be higher than interest rates on other types of loans, such as car loans.
3. Plan your long-term goals
Think about what you hope to achieve financially over the next few years. You may want to buy a new car, finance a wedding or vacation, or buy a larger home. Make a list of each goal and decide which is most important to you. If any of these goals have specific deadlines, write them down as well.
Next, determine how much you will need to save and decide how you will achieve it. It could be as simple as setting aside a certain dollar amount from each paycheck or it could be more complex, requiring you to bring in extra money via overtime or side hustling. Explore a few options until you find one that works for you.
If you don’t have anything specific to try to save for, you can always set aside money for retirement. It is best to keep this in a retirement account rather than a savings account. Retirement accounts give you special tax breaks and enable you to invest your money so that it can grow more quickly.
Not all of the tasks on this list may apply to you, but if there are any that you haven’t done yet, now is the time to start. Even if you don’t fully accomplish what you plan to accomplish by the end of 2023, you can still make some good progress toward your long-term goals.
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