For most people, the New Year is an opportunity for a fresh start and the chance to create new habits. If your wallet needs a makeover, you may consider a few money resolutions.
But before you start drafting your list of goals, here are seven important questions to ask yourself.
1. What is the top financial goal I want to accomplish in 2023?
When it comes to making New Year’s money resolutions, you may be better off with one or two realistic goals. It can be discouraging to make a long, ambitious list, only to cross off a couple of goals by year-end — or, worse — complete none of them.
“Try breaking a few projects into steps and chipping away at them over time,” says Brian Boyd, a CERTIFIED FINANCIAL PLANNER™ professional and managing partner at Boyd Wealth Management in Sacramento, Calif. These can include short term financial goals (like reducing credit card debt or increasing your financial literacy), or long term financial goals like estate planning or saving money for your retirement savings.
2. What do I value the most?
If you’re eager to revamp to your budget, it may be time to consider what is important. “Most of us have to prioritize how we spend money,” says Betty Wang, CFP® professional, founder and president of BW Financial Planning in Denver.
Start by making a list of everything you spend money on by reviewing your bank and credit card statements. Some expenses, such as student loan payments or mortgage payments, can’t be eliminated from your budget. But you may decide that weekly Postmates™ orders aren’t essential. By ranking each expense, it may be easier to set your financial goals, and see where you can make changes over time.
3. Can I save more?
If you aren’t sure how much you’re saving, it may be time to take a closer look at your what percentage of your income you’re setting aside for the future. There is no rule of thumb for how much you should be saving that applies to everyone. But if you can afford to save more, experts agree you should try.
Daniel R. Hill, CFP® professional and president of D.R. Hill Wealth Strategies in Richmond, Va., says even saving $20 a week could make a big difference. If you put that amount in a savings account every week for a year, you will have more than $1,000, which could be an excellent start for your emergency fund.
4. How am I financially protecting my loved ones?
The start of the new year is a good time to consider if your loved ones are financially protected. If the unthinkable happened and your family faced a future without you, a life insurance policy is their financial safety net.
Term life insurance is a simple, affordable type of coverage that lasts for a specific period of time – 10, 15, 20 or 30 years. You pay for coverage during the years you need it most, until your kids are adults or your mortgage is paid off.
The best way to figure out how much life insurance coverage you might need, and how much you’re eligible for, is to use an online life insurance calculator. In a few minutes, it can help you determine you and your family’s needs, and give you a personalized quote for term life insurance coverage.
5. How can I make more money?
While many of the best-known money gurus focus on frugality, you may make more of an impact by increasing your income, says Scott Newhouse, a CFP® professional with Forthright Finances in Thousand Oaks, Calif. There are plenty of ways to boost your skills and education—which may translate to higher compensation.
While another degree or certification may take time, there are plenty of ways to make extra money in the meantime. “A second job or a side hustle could increase your income in the short term,” Newhouse adds.
6. How can I improve my credit score?
If you haven’t checked your credit score or reports, make it a habit in 2023. You can access your credit report from all three of the credit bureaus — Experian, Equifax and TransUnion—once a year for free through AnnualCreditReport.com.
You can get your FICO credit score—the score most commonly used by lenders—for a fee from myFICO.com, or your credit card issuer might provide it for free. You also can get free versions of your credit score from websites, such as Credit Karma and Credit Sesame.
If your credit scores are less-than-perfect, you should make a plan to improve them. Here’s why—higher credit scores could unlock lower mortgage interest rates or access to rewards credit cards, says Greg Mahnken, a credit industry analyst with Credit Card Insider.
Mahnkken says to focus on making on-time payments, which account for 35% of your credit scores. Your total credit utilization—or your credit card balance compared to your limit—is the second most important factor at 30%.
7. Does my investment strategy match my goals?
For most people, choosing a mix of investments and an investing strategy suited to their needs can be intimidating. You may be so afraid of making the wrong choice, that you avoid investing your hard-earned dollars altogether.
The first step is figuring out your risk tolerance. If changes in the stock market keep you awake at night, you may identify as conservative and want to stick to investments that are less risky.. But if you prefer taking risks for a higher potential return, you may prefer taking a more aggressive approach.
Next, you’ll want to consider why you are investing. If you need the money in five years for a home down payment, your investing time horizon is short-term. Or If you want to invest for retirement in 30 years, your timeline is long-term.
Once you have answered both of these questions, it may be easier to pick investments to match your goals. If you’re still not sure, you can contact a financial advisor for guidance.
Ask these questions to reflect on your finances for 2023
After the holidays pass, it’s a good time to think about your intentions for the New Year. Whether you’re trying to earn more, save more or pay off debt, the process begins with self-reflection. “It can be scary, uncomfortable and downright depressing, but the sooner you face the facts, the faster you can put a plan into action and move forward,” says Wang.