Positively Impact Your Financial Health for the Next 12 Months and Beyond
There’s never a bad time to think about improving your personal finance habits, but the start of a new year offers a timely opportunity to assess where you are and where you’d like to be. Financial resolutions are common, usually appearing in the top five types of New Year’s resolutions. If this is an area of focused improvement for you in 2023, review the four financial resolutions below and determine if they suit your needs.
Financial Resolution #1: Review Your Biggest Expenses
Just like a small drip in the kitchen sink will eventually cause it to overflow, small expenses can add up to significant spending over time. If you really want to make a meaningful impact on your finances, you need to tackle your biggest expenses first. In most American households, the top three expenses are housing, food, and transportation. These are also three areas that feel quite challenging to cut, but it’s possible if you’re committed.
The average American household spends 37% of its income on housing. If you need to cut down in this area, you could consider downsizing your home. You could also look at moving to a cheaper market to save on taxes and other cost of living expenses. Living with family or friends might also be an option to explore, and it can be mutually beneficial.
Transportation spending and food costs are a bit easier to tackle. Start by looking into less expensive vehicles, or one that is more fuel-efficient if you have a long commute to work. When it comes to food, the simplest way to slash that expense is to eliminate or strictly limit the amount of dining out or take-out that you buy. When you’re at the grocery store, pay attention to coupons and other specials, and take a budget-led approach to how you buy your food.
Financial Resolution #2: Pay-Off High-Interest Debt
One key to succeeding at debt-focused financial resolutions is to set aside any shame you might feel about your debt. After all, it’s something most people have had to deal with at some point in their lives. Instead, view it as a challenge that you can overcome and put a strategy into place. To save the most money over time, pay off your high-interest debts first. These are typically credit cards, personal loans, and payday loans. Payday loans are financially damaging to many people because of their staggering interest rates – often around 400%, according to the Consumer Financial Protection Bureau. Get rid of these loans first and do everything in your power to avoid having to resort to them again in the future. Then move on to your credit cards, paying off those with the highest interest rates first.
Financial Resolution #3: Dedicate Time to Developing Another Income Stream
If you have a talent or passion that you’re already devoting time to, consider whether you can turn it into an income stream. Having a “side hustle” is different than a part-time job because it will be more than just a paycheck to you. This can make it easier to commit to building it. And who knows? Your passion project may flourish and transform into a full-fledged business in the future.
Assess how much time you’re currently spending on your passion project or hobby. To turn it into an income stream, it’s ideal to set aside at least 10 hours each week. This adds up to an astonishing 500 hours in one year, which can have a significant impact on your earnings. You will also build your skills, find what works for you, and create habits related to your side hustle because of this time commitment.
Financial Resolution #4: Make Investing a Habit
The concept of investing can be intimidating, so how do you get started? If you’re new to it and one of your financial resolutions is to establish an investing habit, dollar-cost averaging could be a viable option. This is a common strategy where you make regular investments of equal amounts at fixed times (weekly or monthly, for example).
Dollar-cost averaging doesn’t require you to make big investments right away, which can be scary for the uninitiated. It also allows you to build a habit by making small investment commitments regularly, allowing you to grow your comfort level and your portfolio at the same time. Start with a passively managed, low-cost, diversified index fund. As your confidence in investing grows, you can explore other approaches and strategies.
Are You Poised to Keep Your Financial Resolutions this Year?
If you’re committed to strengthening your finances this year, the financial resolutions above are good places to begin. Remember, small changes to your financial habits can make a difference, but if you’re hoping to take significant strides to build your wealth, it might be time to consult a professional.
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