Many of us have had our fair share of financial New Year’s resolutions.
Whether it’s creating a better budget, saving more, paying off debt, giving more to charities, or keeping more money for yourself, we all have goals for the new year ahead.
Per this recent MassMutual survey, only 26% of folks are looking to make a financial resolution in 2022. From those folks, 37% want to increase their savings, 27% want to stick to a budget, 25% want to spend more on experiences, 22% want to pay their bills on time, and 22% want to start an emergency fund.
Those are all great financial resolutions to strive for but it doesn’t mean you have to go for every single one. Each is specific to you so if you are already paying bills on time but want to save more, maybe go for that financial resolution.
Where to Start With Your Own Financial Resolutions
Where I recommend folks to start with their own financial resolutions this year is thinking about what you need, what you want, where you are currently, and where you want to be.
I recommend starting with one financial resolution that is a “must have” for you this year and then a 2nd one that would be a “nice to have” to make sure you aren’t easily overwhelmed by everything you’ve put on your plate for the year ahead.
Get out a piece of paper and sketch a table with the following columns:
Write down and list your top 3 financial needs for next year in the Needs column. Then in the Wants column, jot down your top 3 financial wants. Both your wants and needs can cover next year and beyond as well.
For example, my needs could be bills, an upcoming surgery, saving for property taxes and my wants could be to travel, paying off debt, and wanting to retire early. Retiring early won’t be something I can do this year, but I can certainly start planning my finances for that long-term want.
From this exercise, you will be able to clarify which financial resolution is the best for you to start with. Is one of your needs bills and you’ve had a couple past due bills because you went over budget in another category? Then your financial resolution “must have” with that situation is paying your bills on time but you need your budget to support that. So, a “nice to have” would be revamping your budget and maybe creating a better cadence on going back and reviewing/reworking that budget.
Another “must have” and “nice to have” combination for financial resolutions could be creating a better budget for a “must have” resolution and paying off more of your debt would be a “nice to have” resolution.
3 Financial Resolutions to Consider Making in the New Year
Create a Better Budget
A budget was never meant to be a set it and forget it type of exercise. A budget is your income and expenses over a period, but that period of time isn’t meant to be forever.
Your income and expenses will change. If you’re a freelancer, your income changes week to week and month to month. This is a complete 180 from employees that have a set yearly salary where they get paid a set amount each month.
Regardless if you are either, your expenses are likely to change every month as well.
If your resolution is to create a budget this year, or create a better budget, be prepared to change it often and probably monthly. We have even started to look at our own budget every 2 weeks.
An ever-changing budget isn’t a failure. It’s quite the opposite – it is more dynamic and fits your needs as your own needs change.
Start an Emergency Fund
Before we even talk about any financial resolutions, starting an emergency fund is an absolute must if you aren’t already working on building one.
An emergency fund is a savings account that you open, put money into, and build to one day support you in case of an emergency like a job loss, home or auto repair, health issue, or other.
Usually, your emergency fund should include 3 – 6 months (or more) of your basic living expenses.
Some of these living expenses might include:
- Bills such as utilities, insurance, cell phone, internet, etc.
To determine what you need in yours, total up all of your basic expenses for 1 month and then multiply it by 3 as a starter goal amount (then multiply by 6 and above as you grow your fund).
$1,000 or 1 month of expenses in an emergency fund doesn’t cut it anymore and goes quite quickly as 2020 taught us.
However, we all have to start somewhere so as you build your emergency fund don’t be discouraged if it takes a while to reach three months of living expenses or more. Any amount in your emergency fund is better than zero and will help support you through whatever comes your way.
Related: How to Build an Emergency Fund
Pay Off Debt
You have a great budget and process of revisiting that budget, but your debt tally has gotten a bit out of control. Since 2020, you might’ve night been able to put much towards your debt and with emergency relief for federal student loans ending Jan. 31, 2022 this might be a 2022 goal for you.
If paying off debt is one of your financial resolutions, start by totaling your debts and choosing a debt pay off method. Then, be sure to include your new monthly repayment amounts in your budget and update them as they increase or decrease depending on your financial situation throughout the year.
Related: How to Get Out of Debt
How to Stay Motivated to Complete a New Year Financial Resolution
On that same piece of paper where you jotted down your needs and wants. Write the title text at the top called “[Name]’s New Year Financial Resolutions”.
Underneath that, write down the following:
- Your total debt: total them across the different portals that you use to sign into and pay them
- Your total savings: just savings, not retirement savings or what you have in stocks
- Emergency savings: just what you have allocated for emergencies
- Retirement savings: just your retirement savings, totaled across 401ks, Roth IRAs, etc
- Other investments: total your other investments whether that be real estate, brokerage account, etc
- Income streams: day job, side hustles, etc
Then under that, write down your “must have” and your “nice to have” financial resolutions.
Revisit this page every time you revisit your budget and mark down your progress which could be as simple as a sentence every now and then summarizing how your efforts are going or updating the totals next to each of the debt, savings, investments, and income streams line items.
Then towards the end of the year, put next to each if you were able to accomplish them or not and repeat for the following year!
Here’s to a Financially Fruitful New Year
Starting every year with this financial resolution exercise is a great way to not only feel in more control over your finances, but you will start to see more and more options in your life open up as you progress towards your goal. The mere act of setting that intention of a financial goal and doing the actions to go about it sets you on an entirely new path.
Try it out for yourself and see how you like it. It may seem boring at times, especially when some financial resolutions and goals take longer to complete than others, it can get frustrating.
Go at your own pace and have a fruitful new year. You got this.