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It’s that time again: The time of year when people start readying their New Year’s resolutions. And while fitness/weight loss are probably the most common ones, money goals aren’t far behind.
So here are some ideas to get your finances in good shape in the new year. But first a note:
A reader requested a post on getting their finances ready for the new year — but unfortunately not until last week. And obviously, you can’t do all (or even most) of these in less than a week.
But I think that may be a good thing because… Well, there’s a reason most resolutions don’t last past January or February: burnout. People try to make radical, unsustainable changes — or they try to make too many changes too quickly — and it’s too much too soon. So things come to a screeching halt, and any progress is quickly lost.
So my suggestion is to tackle only one of these per month. There are some that you can do quickly and don’t require follow-up; so I guess you could tackle more than one of those in a month. If you must.
But most of us have enough going on in our lives that it’s really best to focus on accomplishing just one of these each month to avoid feeling overwhelmed and stalling out.
Technically, this post contains 17 suggestions, but since I assume that most of you know and practice the basics, I’m skimming the surface of (and thus not counting) the five common tips.
Have a budget
If you’re not already tracking where your spending goes each month, now is the time to do that.
Get a broad overview with your bank’s and cards’ year-end statements showing an annual breakdown of your spending. Then check two or three of your last statements to see what you’ve been spending most recently. Then decide where you want to trim.
If some categories’ spending are significantly higher than you’d like, use a step-down approach, lowering the spending a little each month, to make sure your budget cuts are sustainable.
And moving forward, track your spending — either with an Excel sheet or budgeting software. You can check out Investopedia’s rundown of various software options.
Pay yourself first
Income stagnation (very much including minimum wage) makes this much easier said than done for a lot of people. But if you’re living comfortably… Well, I’ll just refer to the old saying about spending what’s left after saving rather than saving what’s left after spending.
So decide on an amount and then set up an automatic transfer into savings each month. And as you trim your spending, be sure to increase the transferred amount accordingly.
Compare insurance options quotes
An insurance comparison site (Insure.com, PolicyGenius, etc.) will do this in a matter of minutes. That said, if you use rewards sites like Swagbucks or Inbox Dollars, check there, since those usually have one or two companies that will give you points for using them.
Side note: If actually switching feels too overwhelming, at least get some quotes and ask your current company whether it will lower your premium.
Increase your retirement savings
This one is pretty self-explanatory. But just a couple of reminders:
- If your employer doesn’t offer a 401(k), you still have the option of an IRA. Use Fidelity or Vanguard for the lowest fees.
- If you are a stay-at-home spouse, you can still contribute via a spousal IRA.
- If you’re not already maxing out a 401(k), go to HR and have them increase your withholding. Even an extra $50 a month has a big impact with compound interest.
- Make use of your HSA if you have one
- Make use of your FSA if you have one. I know some people worry about having too money left at the end of the year. But you can always stock up on items and lower the withholding for the following years. Another option for excess funds is to buy items for local shelters and take the tax write-off.
Get life insurance
If you have any dependents, you need to make sure they’re provided for in case anything happens to you. Life insurance is surprisingly cheap — especially if you lock it in early — and the process is pretty painless.
Quick note (since it’s now legalized in so many places): If you smoke pot you NEED to disclose it. Companies won’t reject you just because it’s illegal at the federal level. But they can refuse to payout if they find that you were less than truthful about anything in your application — even if the thing in question had nothing to do with your death.
Those are the main perennial suggestions you see and hear every December. But there are others that are a bit less basic and just as important.
Granted, a lot of these may still be reminders rather than novel concepts. But at least scan through the whole post. If nothing else, I think my last suggestion is one you won’t find in most articles like this.
Anyway, let’s get started!
1. Refinance your loans
I’m listing this first, since it’s the most time-sensitive one.
The Fed has confirmed it will increase interest rates in 2022 — by at least 0.75%. So if you’ve been debating refinancing either your mortgage or student loans, do it now.
That said, there are costs associated with mortgage refinances, so definitely use a refinance calculator to make sure it’s worth the savings. You can find calculators on sites like Bankrate and NerdWallet.
2. Ask for a raise
Due to the labor shortage, many companies are prepared to give bigger raises this year. So why not see if your company has the same attitude as the ones surveyed? Ask politely, giving a list of reasons of how you add value to the company, and see what they say.
3. Make good use of new income
If you get that raise — or adjust your paycheck’s withholding or start a side hustle (not out of necessity) — make sure that the new money gets a specific purpose.
Find out how much more your paycheck will be, and setup an automatic transfer of that amount into a savings account (or as an autopay on any debt you have). Since side hustle income often varies, automated amounts probably aren’t feasible, so just make sure you transfer the money away as you get it.
To be clear: “Purpose” can mean many things — all of them valid.
Yes, you can use the money to beef up savings or an emergency fund. You can pay down debt (including paying extra mortgage principal) or start/max out an IRA. But you can also use the new income to build up a vacation fund or save up for home renovations or for your dream car.
No one’s saying the Mustachians have to approve of where you put the new money, just that you know where it’s going.
4. Make a will
This isn’t nearly as daunting as it sounds, I promise.
There are plenty of legal document websites — some with free options — that guide you step by step, making it essentially a matter of filling in the blanks. LegalZoom is the first one that comes to mind, but I used a free trial on a different one (I’m 99% sure it was eForms) and cancelled before I was charged.
Your bank should be able to notarize the will for free. (Except in Louisiana, notarizing isn’t mandatory but it does speed up probate.) If not, the UPS store charges $10 a pop. Bring two people (not mentioned in the will) to sign as witnesses.
5. Get renters insurance
Anyone about to say, “But I don’t have anything of value!” needs to go to their closet and estimate the cost of replacing even half of their wardrobe.
If you’re still not convinced, add in the cost of a new bed, computer and even housewares like towels, dishes and pots and pans. Oh, and the cost of staying in a hotel if a fire, flood or similar issue makes your current place uninhabitable.
All of those things would be covered by renter’s insurance with a fairly low deductible and a monthly premium that should be less than $25.
6. Get disability insurance
Don’t skip this section just because you’re healthy right now.
One in four Americans will become disabled before retirement age. Some will still be able to work, but don’t take chances — especially when disability insurance is so affordable.
You can choose how much income you’d receive. And if you’re willing to pay a little extra, you can get covered even if you can still do some type of work, but can’t be in your current field.
Outside of saving for retirement, this is the best way to protect your future self/dependents.
7. Get rid of recurring charges
According to what feels like every third article for the past few years, a lot of people have recurring charges for services they just aren’t using — or aren’t using enough to justify the cost. Some they may have forgotten they even signed up for.
If this applies to you, modern technology has you covered. There are multiple apps that will log into you accounts, find recurring charges and present you with a list. Some of the apps will even cancel the service for you!
Just be careful because, ironically, some of those apps also involve recurring charges.
Side note: If you’re attempting to eat more healthily, consider getting rid of any food delivery app memberships, even if you are using them. Besides saving the fee, you may be less tempted to eat out if you have to pay for delivery.
8. Set up card-minimum autopay
To be clear, I’m not saying that you should only pay the minimum. But there’s no reason you can’t have the card’s minimum paid automatically and make a secondary payment for the rest.
An autopay for the minimum amount never you’ll never incur a late fee. Which is important because — no matter how diligent you are about your finances — sometimes life just gets in the way of perfect money handling. I actually (for no apparent reason) just plumb forgot to pay one of my cards a few months back. It happens.
And if the worst happens and you do miss a due date for the rest of the balance, pay the credit card in full like you planned, then call the company and ask if they’ll waive the interest.
And yes, you can usually get one late fee and associated interest waived each year, but sometimes life gets in the way multiple times in a year (or just for an extended period of time). So at least you’ll have this safety net in that scenario.
9. Compare credit cards
This advice isn’t just for card churners. All of us check to see what’s being offered — make sure our current cards are giving us the best value.
You can usually trust Nerd Wallet to give impartial reviews, but remember that any site comparing credit cards is probably an affiliate and will make a commission if you sign up through them. So be sure to think critically.
10. Download rewards apps
Most folks have heard of Ibotta, but did you know that you can get cash back for gas, takeout and even prescriptions? In fact, one rewards programs gives you points for scanning any receipt at all!
I go into more detail in this post, but the short versions are:
Get Upside gives you cash back on gas and a number of restaurants — both national chains and local businesses. Go into the app, choose the gas station or restaurant you plan to visit, then make the purchase/buy the food within four hours. Upload the receipt, and you’ll be credited within 24 hour.
Fetch Rewards gives you a minimum of 25 points for any physical receipt scanned (and some virtual ones). You’ll get more points if you happen to buy from certain brand partners, but you’ll always get at least 25. The app will also give you points for using GoodRx!
Again, if you sign up, please consider using my referral code (PNT6C) and get 2,000 points when you scan your first receipt.
Shopkick gives you points for a few activities: scanning products in-store, buying products and watching videos. Pull up a list of stores, and you will see opportunities to get points for purchases and sometimes just scanning products. In a few cases, you’ll get some points just for walking into a store.
And one last time: If you join, please consider using my referral code (YAY045135) and get a $2 credit.
11. Cash back shop
If you’re not already use cash-back shopping sites like Mr. Rebates, you could be missing out on a lot of savings. And it’s very simple to do.
Instead of going directly to a store’s site to make a purchase, go to the cash back site, do a search for the store, and then click the link on that site to be taken to the store’s website. Then complete your order as normal.
The site gets a commission from the store for your order, and they pass the bulk of that commission onto you in the form of a rebate. And cash back sites have thousands of stores listed.
You can get a full rundown on the cash back shopping process here, as there are a few things to be careful about. But by and large the only difference between regular shopping and cash-back shopping is that you have to go to one extra site before your order.
And some of the sites, like Rakuten, offer some in-store cash back opportunities. That said, Rakuten often doesn’t have the highest regular cash back rates for online purchases, so if you sign up there, be sure to check some other cash back sites’ rates for the store before placing your order.
12. Evaluate spending value
A lot of these types of posts imply or outright say that you should cut ruthlessly cut spending everywhere. But I disagree with the slash-and-burn approach (unless of course it’s necessary for financial survival). Here’s my suggestion:
Evaluate your spending’s emotional ROI
Yes, we should always keep an eye on places where we can trim our spending. But remember that the point of being careful with money isn’t just future security. It’s about having the money to enjoy the present too. And beyond the fact that merciless budget-slashing is rarely sustainable, it also rarely leads to an enjoyable life.
Instead of constantly trying to cut down spending, I think we should stop and ask ourselves whether we’re spending on what really matters to us.
See, I don’t think there’s shame in spending some disposable income on what others might consider indulgences/luxuries. The only shame would be if your purchases don’t give you a good emotional return on investment.
So go through a few recent credit card statements and see if you’re spending on things you actually value.
Spending where it counts
If you’re a foodie, you don’t need to apologize for a robust dining out budget — if the money is being spent on what you’d consider worthwhile.
To check this, use a few months’ bank and credit card statements to compile a list of all of the food establishments that have been getting your money. Then make sure you got value out of those meals.
Because if you revel in intricate dishes and novel food concepts, it’d be pretty disappointing to find out that you’re spending 20% or more of your dining out funds on mediocre convenience meals. If that happens, then hopefully it will spur you on to find ways to save your money for quality meals — perhaps by meal prepping on the weekends and always bringing your lunch to work.
Conversely, if you love prepared food solely as an energy/sanity saver, you’d be bummed if you find that a lot of your food spending is going to those restaurants your foodie friends drag you to. And you’d find workarounds like offering to meet friends at the second activity of the night — or eating ahead of time and just ordering water or a soda. Then you can better afford letting pizza save the day when you’re too exhausted to cook.
And of course, this approach applies to any budget category.
Maybe you love quality, stylish clothes, but a review of your spending/closet finds that you’re buying mostly fast fashion that wears out quickly. Well, then you can cut down on the H&M/Forever 21 trips and instead check thrift stores, consignment shops and Poshmark/The RealReal for good prices on better quality clothing.
Maybe you love seeing plays and supporting local arts, but you discover you’re spending a ton of your entertinment budget on meh movies with friends. In that case, you can vow to be more choosy about which films you see (read reviews, really evaluate your interest in the movie, etc.) And then use the money you save on tickets — either retail or discounted through Goldstar and Pay What You Can nights.
The list goes on, but you get the idea.
The point is that it’s not enough to know how much money you’re spending in each category — you also need to know that the money spent is adding real value to your life.
And of course, any hard look at spending will usually mean that people find expenses they could cut altogether without impacting their happiness. So it’s highly likely that this exercise will end in your being both more frugal and enjoying life more. Win-win.
Do you have any financial resolutions this year? Or any tips to add?