As we enter the new year, it’s a great time to take a close look at your finances and make some changes. Financial experts say there are several steps you can take to improve your financial health. First, create a balanced budget.
Many experts recommend using the 50/30/20 rule. This means 50% of your take-home pay should go toward basic living expenses like housing and food. 30% should go toward things you want but don’t necessarily need, like entertainment and clothes.
The remaining 20% should go into savings and paying off debt. If your budget is out of balance, you may need to cut back on some big fixed expenses. These include things like rent, car insurance, and utility bills.
Kristin Wong, author of “Get Money: Live the Life You Want, Not Just the Life You Can Afford,” says cutting these costs can save you a lot of money. Consider getting a roommate or moving somewhere cheaper to save on housing. Shop around for better deals on car insurance and phone plans too.
Next, look for ways to spend less on must-haves. These are variable expenses like groceries, gas, and electricity. Set a spending target for these categories.
To save on food, try eating out less often and buying in bulk. It’s also important to control your discretionary spending. This includes things like streaming services, gifts, and vacations.
Year-end financial planning tips
Financial educator Tiffany Aliche suggests making a “buy list” to avoid impulse purchases. If you still want the item after a set period of time and it fits your budget, then you can buy it.
Paying down debt should be another priority. Make sure you have enough money each month to cover your minimum payments. If you have extra cash, focus on paying off high-interest debts first.
This is known as the Avalanche method. Or you can pay off your smallest debts first for quicker wins, which is called the Snowball method. Don’t forget to save for the unexpected and the expected.
Aim to build an emergency fund with at least three months’ worth of expenses. Also, save a little each month for predictable costs like birthdays and travel. If saving is a struggle, look for ways to increase your income.
This could mean finding a higher-paying job or starting a side hustle like tutoring or babysitting. Finally, check on your investments once a year. Review accounts like 401(k)s, Roth IRAs, and brokerage accounts to make sure they’re performing well.
Look at your monthly contributions, fees, and rate of return. Compare your returns to a benchmark like the S&P 500. By following these steps, you can start the new year with your finances in great shape.
Experts like Rita Soledad Fernández Paulino, Kristin Wong, and Tiffany Aliche contributed their advice to this guide. With some planning and discipline, you can cut costs, pay down debt, save more, and set yourself up for financial success.
