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As 2013 draws to a close, a Fidelity survey found that 46 percent of consumers plan to make a New Year’s financial resolution. Saving more, spending less and paying down debt were the most popular goals. However, more than a third of respondents felt financial resolutions are harder to keep than commitments to lose weight or quit smoking. Less than half felt they achieved a significant majority of last year’s financial goals.
One obstacle might be that half of Americans lack formal financial goals, as reported by Northwestern Mutual’s 2013 Planning & Progress report. The report noted that nearly four out of 10 people complain they’re too busy to think about long-term finances. If you’ve been putting off your financial planning, the New Year is the perfect time to start.
Develop a Financial Plan
The American Institute of Certified Public Accountants suggests financial planning tips and goals applicable to typical situations millennials face.
- If you’re a college student, AICPA emphasizes the need to learn how to reign in your spending
- If you’re building your career, make sure to understand your benefits, take advantage of direct deposit opportunities, plan your taxes and investigate retirement plan eligibility, along with disability and life insurance
- If you’re getting married, consider items such as joint accounts and taxes, shared insurance and child care expenses
- If you’re buying a home, you’ve got mortgages, taxes and insurance to consider
Create Your Budget
Whatever your financial goals, some universal budgeting principles apply. Many experts advocate the 50/30/20 rule of thumb developed by Elizabeth Warren. This involves putting 50 percent of your monthly income toward necessities, 30 percent toward discretionary nonessentials and 20 percent toward increasing savings and reducing debt. Use this strategy to help you budget for your New Year’s goals.
Build Your Savings
Saving more was the most popular resolution in Fidelity’s survey. Experts recommend building two types of emergency funds: First, build a fund of $1,000 to cover sudden expenses such as car repairs or funeral flights. Next, in the event of job loss, save up enough to cover three to 12 months of expenses.
After achieving both these goals, consider other savings goals such as retirement or tuition funds. If you’re currently receiving regular structured settlement payments, consider selling future payments to a company that buys structured settlements for a lump sum of cash now. These funds can then be used to invest in your future (i.e., buying a home or paying for school).
Cut Your Spending
Another popular resolution is cutting spending. According to the USDA’s Center for Nutrition Policy and Promotion, the three biggest expenses for most households are housing (including utilities), child care and education, and transportation. Strategic goals in these areas could include finding less expensive housing, insulating your residence, buying a car with better mileage and getting cheaper car insurance.
Pay Down Debt
The other most popular resolution is repaying debt. Financial advisor Dave Ramsey recommends his snowball plan for debt reduction. You pay off your smallest nonmortgage debt first, and then you can put the money from the bill you save each month toward your next biggest debt.