When it comes to New Year’s resolutions, most of us are set up for failure. We set these lofty goals, like losing 50 pounds, quitting smoking, or saving more money.
The first day or two goes well, even the first week or month, but then something distracts us. We start finding excuses, guilt creeps in, then procrastination. Eventually, we give up.
When it comes to money and finances, everyone has different goals and objectives. But it’s best to set small, achievable goals rather than abstract ones like save for retirement. Let’s get specific.
Here’s how to set and reach your financial goals for the new year.
1. Get Motivated with the Debt Snowball Method
Get out of debt with the “debt avalanche” or “debt snowball” method. The avalanche method involves finding out the annual percentage rate (APR) for each of your credit cards and then focusing on paying off the card with the highest APR. The snowball method focuses on the credit card with the lowest balance since it is the easiest and fastest card to pay off.
While the avalanche method saves you the most money on interest, the snowball method has the advantage of providing encouragement and motivation for tackling debt fast.
2. Automate Roth IRA Contributions
In your online banking system, you can automatically send money from your checking account to your traditional and/or Roth IRA every month. The maximum amount you can contribute to all of your IRAs for 2020 is $6,000 (up from the 2018 maximum of $5,500). That means, you can send up to $500 to your Roth IRA every month to stay within the contribution limit.
Simply log into your bank account and set up automatic transfer from your checking account to your Roth IRA. If you have any questions about this, ask your bank. If you can’t afford to send $500 to your IRA every month, we recommend setting aside 5% of your monthly income to your IRA.
And if your employer offers a 401(k) match, make sure you are signed up and contributing the maximum amount.
3. Automate Credit Card and Bill Payments
Bills have a way of catching up with you. Make it a resolution to avoid paying late fees forever! You can do this by automating your monthly bill payments. Similar to automatically sending money to your IRA every month, you can set up automatic bill payments to your credit cards, utility bills, and other regular payments. Just make sure you have overdraft protection set up so you don’t wind up paying overdraft fees, which are often even higher than late payment penalties.
If you can, set up your automatic credit card payment to make the full payment every month. This way, you’ll get all the perks of a credit card without any of the high interest payments.
Check your credit card payment due date and then set the automatic bill pay option to take out the full payment from your checking account.
4. Add to Your Emergency Fund
Many Americans go into debt because of an unexpected financial emergency. Save yourself from future debt by automatically setting aside some money into your savings and sub-savings accounts.
You know you will have certain expenses in the future, such as car and home maintenance, vacations, and medical expenses. The best way to prepare for these “unexpected” expenses is by putting about somewhere between 10-20% of your income away into your savings account. Like your automatic bill payments, you can set up automatic transfers to your savings accounts every month. Learn more about using sub-savings accounts and saving money.
5. Learn Where You Can Save Money
Get into the habit of checking your bank statement every month. This will give you a good idea of what you are spending your money on. You can also see if there are any erroneous charges that you may need to dispute.
Add up all of your expenses in different categories, such as food, shopping, and entertainment. You might discover that you are spending a lot more on eating out than you originally thought.
Learn more about saving money using the envelope system and assessing your income and costs. These debt reduction and money-savings apps will also help.
Money and Mental Health in 2020
Debt takes a toll on your credit score, but it’s also highly damaging to your mind and body. Some of the negative side effects of chronic indebtedness include poorer working memory, emotion regulation, impulse control, and executive decision making. All of the things you need to improve your financial situation. Debt and stress exist in a negative causality loop, feeding off each other and intensifying their effects.
Learn how debt impacts your mental health and how to plan for a debt-free 2020.
No matter what debt you have, you want to know how much you owe, what your interest rates are, and have a plan for reducing expenses and increasing your monthly payments. Don’t be afraid to ask for help!
To help you get on the road to financial success in 2020 and beyond, contact the debt specialists at DebtBlue for your free consultation.