WalletHubÕs 16 For Õ16:
Financial Resolutions For The New Year
The first of
the year always brings with it the promise of new beginnings and the burden of
self-improvement. Fueled by the nostalgia of the holidays, armed with a yearÕs
worth of regrets, and unleashed by the ceremonialism and ritual of the
calendarÕs turn, some 45% of Americans decide to make New YearÕs resolutions
each January, according to research from the University of Scranton. They are,
it seems, taken by the spirit that led Benjamin Franklin to write that one
should, ÒBe always at war with your vices, at peace with your neighbors, and
let each New Year find you a better man.Ó
We all
certainly have our fair share of vices, especially as they relate to money.
Financially-themed promises for improvement are, unsurprisingly, always among
the most popular resolutions made each New Year. Unfortunately, only about 8%
of resolution-makers are ultimately successful in their endeavors Ð a statistic
that does not fare well for money management improvements.
Neither
historically low odds of success nor uncertainty about the best resolutions to
make should discourage you from improving your financial habits in 2016,
however. We at WalletHub have come up with the following list of the 16 Best
Financial Resolutions for 2016, along with some helpful pointers for bringing
them to fruition.
16 Resolutions for 2016
1 Get Reacquainted
With Your Finances & Reassess Your Priorities: The first step toward
financial improvement is to get the lay of the land. That means carefully
reviewing at least one of your major credit reports, in addition to checking
the status of all your financial accounts, taking stock of your assets and
debts, and evaluating your monthly cash flow. Going over your finances at the
account level will enable you to identify spending trends that need adjustment
as well as determine whether a new account would save you money. Not only are
your financial needs bound to change from year to year, but there are also a
number of interesting market developments that you would do well to take
advantage of. For example, credit card companies are offering extremely lucrative
sign-up perks Ð such as a $625 initial bonus or 0% for 21 months Ð to new
customers with above-average credit standing. Online-only bank accounts now
offer vastly superior terms to branch-based accounts as well, and you can still
save a lot of money by refinancing your mortgage in the current low-rate
environment.
2 Sign Up For
Credit Monitoring: ItÕs quite stressful to be a consumer in this day in age,
with our new digital economy spawning unfamiliar financial threats and
extending the timeframe for vigilance well beyond traditional banking hours.
But new tools have also emerged to ease our transition to this new 24/7
personal finance environment, and credit monitoring is among the most helpful Ð
especially since WalletHub offers a 100% free option.
Credit monitoring is essentially a surveillance system for your credit report,
notifying you anytime key information on your file changes. It therefore
increases the odds that you will find out about any administrative errors or
suspicious activity before it can cause much damage. The biggest thing to watch
out for is the frequency with which the underlying reports that are being
monitored get updated.
3 Make A
Strategic Budget: Only about 40% of adults have a budget, according to survey
data from the National Foundation for Credit Counseling. The fact that weÕre on
pace to rack up nearly $68.5 billion new credit card debt during 2015 is
perhaps a bit less surprising as a result. But those statistics also signal the
need for greater urgency on our part. The $8,071 that the average household
with credit card debt is expected to owe when the final data from 2015 comes in
is just about $350 below the level that our sister site CardHub previously
identified as the tipping point at which existing balances would become
unsustainable, defaults would increase and another would recession become more
likely. In short, we need to cut back if we want this prolonged economic
recovery to continue. The best way to make a budget is to gather together all
of your bills from the past few months and then make a list of your recurring
expenses in order of importance Ð with true necessities like housing, food and
healthcare obviously taking precedence. You can then compare the cost of these
expenses against your monthly take-home and eliminate any outlays that would
outpace your spending power. After that, just make sure to compare your ensuing
monthly spending to your planned budget to make sure youÕre abiding by it.
4 Implement The
Island Approach: The Island Approach
is a personal finance technique based on the theory of compartmentalization
that encourages consumers to isolate different financial needs on different
financial products Ð as if they are a chain of related islands. For example,
this might entail getting one credit card for everyday purchases that you can
pay off in full by the end of the month and another for revolving debt. Doing so
will enable you to get the best possible terms on each card (i.e. a great
rewards earning rate on your everyday card and an extended 0% term on your debt
card) rather than compromising for middling terms on a single card. It will
also help you reduce the cost of your debt, since everyday purchases wonÕt be
inflating your average daily balance, and garner valuable perspective on your
finances Ð if you ever incur interest on your everyday card, youÕll know you
spent too much that month.
5 Automate As
Much as Possible: One of the most easily avoidable mistakes that people make in
regards to their finances is missing due dates. Often due to pure
forgetfulness, tardiness can have serious ramifications on your financial life
Ð such as missed credit card payments fostering credit score damage. Luckily,
avoiding such a negative event is as simple as setting up recurring monthly
payments from a checking account. You can do so for your full balance, the
minimum amount required or a customized amount, and this applies to a variety
of different types of bills Ð from credit cards to cable. Of course, youÕll
have to remember to review your monthly statements in order to avoid being
overcharged or missing a sign of fraud, but youÕre not on the clock for that
like you would be with payment._For more help
keeping your payment train on schedule, check out our 8 Tips For Never
Missing A Due Date.
6 Build An
Emergency Fund: Roughly 56% of Americans do not have a rainy day fund,
according to the Financial Industry Regulatory AuthorityÕs National Financial
Capability Study. Like someone without insurance, folks who lack an emergency
fund are merely tempting fate and putting themselves at risk of financial
catastrophe in the event of prolonged job loss or significant emergency
expenses. Building up some monetary reserves should therefore be one of the
first orders of business for any financial makeover. While we recommend
ultimately building a fund with about 12-18 monthsÕ take-home income, itÕs
important to understand that wonÕt happen overnight. As a result, you neednÕt
put the rest of your financial life on hold until your emergency fund is
complete, but rather chip away at it over time. That is key because we actually
recommend creating a 6-month safety net before beginning to even pay down your
debts in earnest. Doing so will help ensure that you do not end up right back
where you started upon finally reaching debt freedom._ÒJust as you might dress for success, spend for
failure,Ó said Scott C. Hammond, a clinical professor of management at Utah
State University. ÒAssume you will go 6 to 12 months every ten years without a
pay check. Save accordingly. Live on a budget. Store a little food. Have a
solid savings account with liquid assets.Ó
7 Get Out Of
Debt: We clearly have a problematic, sordid love affair with debt. After
curbing our enthusiasm for overleveraging during the struggles of the Great
Recession, we have reaffirmed our affinity for it as the economic skies have
cleared. We racked up an average of $41.1 billion in new credit card debt Ð a
useful indicator of consumer spending habits Ð each year from 2011 through
2013, in addition to $57.4 billion in 2014 and a projected $68.5 billion in
2015. Something must change. Some of the steps mentioned above Ð including
budgeting, automation and the Island Approach Ð will obviously help in terms of
reducing your future reliance on debt, but the problem of what to do about
existing balances still remains. The combination of a 0% balance
transfer credit card and a credit card calculator can
help the average household save more than $1,000 in finance charges and get out
of debt months sooner than they would otherwise. Taking aim at your
highest-interest balances first, while attributing only minimum
payments to the rest, is also a strategic way to pay off what you owe at the
lowest possible cost in terms of both money and time._ÒI think credit card debt is one of the most
difficult obstacles that people face,Ó says Deena B. Katz, associate professor
in the Department of Personal Financial Planning at Texas Tech University.
ÒItÕs very easy to pull out a card and buy, particularly online or during the
holiday season when you want to do special things for your family and it
doesn't need to come out of your pocket today. I believe that if you were
buried in debt that a priority resolution would be to pay off your debt as
quickly as possible to avoid overpaying for the things you bought on credit.Ó
8 Improve Your
Credit Score: In case you werenÕt aware, the annual
difference in cost between good and bad credit is roughly $650 in
credit card payments, $1,400 on your auto loan and $2,300 on a mortgage. The
savings inherent to good credit extend well beyond that as well, considering
that your credit standing impacts your insurance premiums, your ability to buy
a car or rent an apartment and the types of jobs you can get Ð in addition to
the loans youÕre eligible for. The best way to improve your credit is to
maintain an open credit card account that is in good standing. The card will
then report positive information to the major credit bureaus each month, either
building out your thin credit profile or helping to devalue mistakes from the
past. You donÕt have to get into debt to benefit from the credit building
capabilities of a credit card, unlike with a loan, and you donÕt even need
to make purchases with your card. If you donÕt have the credit
standing necessary to qualify for a normal credit card, you can always place a
refundable deposit on a secured credit card and benefit from whatÕs tantamount
to guaranteed approval. _You can get
your free credit score, updated daily, by signing up for WalletHub. This will
give you an accurate sense of your starting point and enable you to track your
progress over time.
9 Save 16% More
Than You Would Normally: Most people are pretty good at wasting money. Many of
us donÕt have budgets or emergency funds; we rack up expensive credit card debt
by the billion; and we prioritize short-term desires over long-term needs.
After all, 1 in 4 people nearing retirement age have absolutely no money saved
up, according to the Federal Reserve.
Well, why donÕt we take some steps to change that in 2016? Retirement obviously
isnÕt your only savings need. You also need to save for college, weddings,
vacations, etc. The best approach to meeting all of these savings needs is to
establish separate accounts for each, which you fill with automatic monthly
contributions from a bank account. This gives you some useful perspective on
each of your goals and enables you to better track progress. Your goal for the
year should be to boost the value of each of your accounts by 15%. This will
obviously take hard work and sacrifice, but figure out how much youÕll need to
put away each month in order to meet that goal and get cracking.
10
Give Back To Charity: Charitable giving is
beneficial in terms of self-perception, tax liability and basic humanity.
Perhaps that is why monetary donations totaled more than $358 billion in 2014,
according to data from Giving USA and Indiana University. Even though that
represents a 60-year record, we should make it our mission to be even more
benevolent in 2016, with a special emphasis on donations involving money rather
than time. Why? Well, most people can actually make a bigger impact on
charities by spending extra time at work and donating cash than by
volunteering, according to WalletHubÕs
Charity Calculator. More specifically, the average American Ð who
earns $30,176 annually and volunteers one hour per week Ð would be able to
donate more than 8,350 meals to hungry children, provide roughly 2,040 measles
vaccinations or give nearly 170 refugees a year of clean water just by working
an extra hour instead of volunteering, and then donating the proceeds. Unless
youÕre the Iron Chef, youÕre probably not going to cook over 8,350 meals in 52
hours!
11
Do Your Taxes Early: Up to 25% of Americans wait
until April to file their taxes each year, according to the IRS. As with
anything else, procrastination breeds mistakes and 2.6 million people made math
mistakes on their taxes in 2013 Ð the most-recent statistics available. Many
people also end up filing late and underpaying, incurring expensive penalties
along the way. Starting your tax prep early is the best way to avoid these
unfortunate events, not to mention lowering your stress levels. Not only can
getting organized take a considerable amount of time, but foresight will also
enable you to adjust your withholdings in order to avoid a tax deficiency as
well as ensure that you are not over- or underpaying.
12
13
Make Financial Literacy A Family Priority: While
gradually improving in many ways, financial literacy levels in this country are
still rather anemic. In fact, the U.S. ranked 14th globally for financial
literacy in a 2015 survey by Standard & PoorÕs, behind the likes of Canada,
the United Kingdom and Germany Ð just to name a few. WhatÕs more, roughly 41%
of Americans grade their financial know-how at a C-level or below, according to
the National Foundation for Credit Counseling. This is important not only as it
relates to our own finances, but also in terms of how our children will manage
money once they mature. Children tend to learn by example, which means yours
are likely continuously internalizing how you handle money Ð information that
will serve as the foundation for their future relationships with finance. You
therefore need to do your best to improve your own financial performance in
order to impart beneficial lessons upon your children._You should also take steps to give your kids
hands-on monetary experience while theyÕre young. This should begin with games
Ð like Financial Football or Savings Spree Ð that are designed to teach kids
about the value of money and encourage positive habits like saving regularly.
Then, as your children age, you can provide them an allowance on a series of
financial vehicles Ð starting with a prepaid card, progressing to cash and a
checking account, and ending with a student credit card Ð while requiring them
to pay some of their own discretionary expenses._This will confer a range of practical benefits, from building account
management skills to encouraging budgeting Ð especially if you actively
participate and make the process fun. You can even add our WalletLiteracy Quiz to the
mix to see where you stand and track your progress over time._ÒHaving an open dialogue about money early and often
can lay the groundwork for financial planning,Ó said Nicholas Prewett, director
of financial aid at the University of Missouri. ÒIndividuals who know the value
of a dollar and what it takes to earn those dollars are more likely to respect
the idea of financial planning. Parents sharing experiences (good or bad) on
taking out loans, paying those off and the sacrifices made to get what they
want is also important.Ó
14
Change Your Email Password Every 3 Months:
Cybercrime has become a major theme for both the modern consumer and corporate
America, with a number of notable banks, retailers and entertainment companies
getting hacked in recent years. In fact, there were roughly 750 data breaches
in 2015 through mid-December, resulting in the exposure of nearly 188 million
personal records, according to the Identity Theft Resource Center. And while
there is only so much you can do if your credit card information get pilfered
from a store Ð all credit cards offer $0 fraud liability guarantees anyway Ð
there are a number of steps
that you can take to otherwise make yourself a much harder target for
fraudsters. Perhaps the most important, yet underrated measure you can employ
in defense of identity theft is a strong password for your primary email
account that you change on a regular basis. You can also add your cell phone
number to your account contact information and enable two-factor authentication
to take things to the next level. Protecting your email is essential because it
is likely what you will use to reset passwords for other accounts, and thus
serves as a gateway to your finances. _Robust email
security does not, however, represent the extent of the simple changes you can
make to improve your anti-identity theft protections. For instance, shredding
sensitive financial documents before throwing them away and putting a lock on
your mailbox when youÕre out of town will shield you from opportunistic
criminals targeting your trash or correspondence. Making a credit card your
primary spending vehicle and only signing for debit card purchases (rather than
entering your PIN) will confer the most robust fraud liability
benefits on you as well. Checking your credit report every few
months will also enable you to spot fraudulently opened accounts before they do
too much damage.
15
16
Shoot For Top Physical & Financial Fitness:
There is a clear connection between physical, emotional and financial health.
Not only are health care expenses the leading cause of bankruptcy in the U.S.,
but they also comprise a great deal of our annual spending between insurance
premiums, out-of-pocket costs, gym memberships and more. Money, work, the
economy and family responsibilities Ð all financial concerns in one way or
another Ð are also the most commonly reported causes of stress, according to the
American Psychological Association. This all serves to underscore the
importance of getting our financial houses in order as well as getting regular
exercise and engaging in other healthy practices aimed at keeping our
healthcare costs low. It wonÕt be easy, but this is one resolution that will
certainly pay dividends across the scope of your life._ÒIf you begin to make small healthy changes to your
diet, increase exercise in small increments, and practice yoga and meditation,
you will feel better,Ó says Deborah Bauer, the Powell Distinguished Senior
Instructor of Finance with the University of Oregon's Lundquist College of
Business. ÒFeeling better will lead to wiser financial decisions that focus on
the long term.Ó
17
Help Other Consumers: We consumers need to stick
together. After all, itÕs hard enough trying to lead a financially responsible
lifestyle in this era of economic turmoil, political obstinacy and unbridled
spending without some support. One of the best ways to aid others in the
pursuit of financial responsibility is to share your experiences with different
financial products, companies and professionals. Reviews have the power to
drastically improve transparency in the personal finance space Ð as has been
the case with the hospitality industry Ð enabling people to avoid the bad
apples, gravitate to the best deals and ultimately save money. That is
especially true now that the Securities and Exchange Commission is allowing
financial advisors to interact with consumer reviews for the first time. The
financial industry is ripe for disruption in this regard, as there are likely
more reviews for dog walkers than for the professionals managing our retirement
plans.
18
Stress Test Your Finances: People are generally
optimistic in nature, which means it can be difficult to imagine and prepare
for worst-case scenarios. Responsible financial management is all about
preparation, though, which means it is very important that you put your
personal finances through the paces Ð much like banks and other financial
institutions are required to do in order to verify their stability. For
example, you may wish to determine if your finances are equipped to handle job
loss or the death of the familyÕs breadwinner. This clearly isnÕt an uplifting
exercise, but it will enable you to determine if you have the savings,
insurance policies and contingency plans necessary to overcome potential
hardship._ÒRecessions and economic downturns are
no longer global or regional, but they are local to the point of being
personal,Ó Hammond said. ÒYour work, your career, your employer is booming. You
get raises and bonuses. Your neighbor is downsizing and hoping that
unemployment is extended. With one or two changes, you could be your neighbor.
In fact, you will be your neighbor. Eventually we will all be hit. So get ready
to recover in advance.Ó
Ask The Experts: Making & Keeping New YearÕs Resolutions
We turned to a panel of leading experts in the fields of personal
finance, business, management and psychology for additional insight into the
best New YearÕs Resolutions for achieving financial improvement and strategies
for sticking to them. You can check out our expertsÕ bios as well as the
questions we asked them and their responses below.
1 What are the
Do's and Don'ts of New Year's resolution-making? If, for example, someone wants
to get out of debt in the New Year, what would be the best approach?
2 To what
extent does a solid support system make it easier to stick to resolutions? Is
it therefore a good idea to have a resolution buddy?
3 What about
incentives - does rewarding positive behavior make it easier to adhere to a
long-term goal? Are there certain types of incentives that are better than
others?
4 What is the
ideal number of resolutions, in terms of maximizing impact and minimizing
attrition?
5 What are the
most important financial resolutions for people to make as we head into 2016?
6 CardHub
predicts that consumers will rack up at least $68.5 billion in credit card debt
during 2015 Ð thatÕs worthy of a resolution, right?
7 What about
government Ð how can local and national officials improve their financial
performance in the New Year?
What are the best practices for ensuring that resolutions turn into
lasting changes?