One of the most common resolutions made when the calendar flips to a new year is to make better financial decisions. Whether it is to save more or make more, money goals often top people’s lists when they think of how to make the new year the best one yet.
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Unfortunately, finding financial freedom is hard without a plan. For those hoping to get finances in gear, here are four habits to adopt for a wealthier year.
Prioritize Savings
According to Citizens Bank, one financial habit that can start the new year off right is prioritizing saving. After paying bills, the financial institution recommended transferring funds to savings before purchasing any non-necessities. Many banks offer free services through an app or on their website that allows users to automate savings each month.
Most experts recommend by starting an emergency fund of at least $1,000 and working up to a fully funded savings account of three to six months’ worth of expenses. The most recent data from the Board of Governors of the Federal Reserve found that only 63% of adults could afford an unexpected expense of $400.
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Set (and Stick To) a Budget
One of the most important habits a person can develop to grow wealth is setting a budget. As explained by SmartAsset, budgeting is useful for people of all income levels. According to the financial tech company, budgeting can help to limit overspending, identify spending patterns, reach long-term financial goals and help prepare for emergencies.
While the idea of setting a budget may be overwhelming at first, there are a few simple steps to get started. Begin by identifying a goal, according to investment firm Fidelity. Next, track spending and take time to accurately calculate income. Having a clear concept of how much is coming in and going out each month is critical. Once income and expenses are determined, a plan could be made of what to save each month to achieve the financial goals laid out at the beginning of the year.
Plan Ahead for Vacations and Other Expenses
A wealthier new year begins with planning. Establishing an emergency fund for unplanned expenses is important, but so is having money set aside for known costs. Being on a budget does not mean that things like vacations or nonessentials are off-limits. It just means that they are planned for and paid for ahead of time.
A good habit to establish for financial stability is putting money aside for future wants. Instead of pulling out the credit card and spending the next several years paying it off, stay ahead by earmarking money for the expense.
Choose a Debt Payoff Method
Financial freedom begins with paying off debt, particularly credit card debt. According to Experian, the average credit card balance was $6,735, with younger generations continuing to rely heavily on them to pay for everyday expenses. The problem is that many credit cards carry high annual percentage rates (APRs), which can make even a small balance difficult to pay off if making only minimum payments each month.
Instead of living in perpetual debt, make a payoff plan for the new year. One popular strategy is the snowball method. As explained by Ramsey Solutions, the technique works by listing all debts from smallest to largest and making minimum payments on all of them except the smallest one. Put as much money as possible toward the smallest debt until it is paid off. Once that debt is paid off, apply the extra money toward the next smallest debt and repeat until each debt is paid off in full.
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This article originally appeared on GOBankingRates.com: 4 Financial Habits To Adopt in January for a Wealthier Year
