Personal Finance Resolutions for the New Year
Did you know that women, on average, have less than half the net worth of men? Men, on average, have a net worth of $12,000. The average woman’s net worth is around $5,500. I am on a personal mission to help women increase this number, one step at a time! Have you found yourself wondering, “How do I manage my finances better? How can I build my net worth?”
If you want to increase your net worth while only spending a few minutes on your finances a week, hopefully my personal finance resolutions for the year will give you some ideas. I already do some of these things and some are new habits. However, you can use these personal finance ideas regardless of how much money you make or what your current net worth is.
Note: I am not a certified financial planner or other financial planning professional. Seek advice based on your personal needs and situation.
How to do a personal finance checkup
Before you set your personal finance goals for the year, it’s helpful to do a financial checkup. Take a look at your expenses and income from the previous year. Calculate your net worth by adding up your assets (home, retirement accounts, brokerage, checking and savings) and subtracting liabilities (car loans, home loans, HELOC, credit card debt, student loans, and any other debt). This will help you develop a clear picture of your current status.
Don’t get discouraged if the picture isn’t as great as you expect. Don’t forget that you are looking for ways to improve! If you have found some, that is awesome! Note: If you feel shame or guilt about money, I highly highly recommend riding Vicki Robin’s book Your Money or Your Life (affiliate link). It really changed my mindset about money.
One final note: Personal Capital is absolutely amazing for tracking your finances. (Note: I am not affiliate with Perosnal Capital.) There is some up-front work to enter your account information. After you set it up, you can easily track your expenses, income and net worth. It’s so helpful to see all of your accounts in one place.
These are my financial resolutions for the year. Hope they spark some ideas for you!
Personal Finance Habit 1: Max out your 401k
If possible, max out your 401k. You can contribute up to $20,500 per year based on the new 2022 IRS 401k limits. You may need to adjust your 401k contribution amount since the limit is higher this year than in previous years. You shoudl be able to make this change with your HR or payroll department. Any dollar that you contribute to a 401k reduces the dollars on which you pay tax. This is especially beneficial if you’re in a higher tax bracket.
If you can’t contribute the maximum allowable, try to contribute at least enough to maximize your company’s 401k match if you have one. For example, your company may provide a match up to 3% of your salary. If you make $50,000 a year, your company will match your 401k contributions up to $1,500. So try to contribute at least that much so you get the full match.
If you’re not sure about your company’s 401k program, you can reach out to HR or benefits for more information. If your company doesn’t offer a 401k, see if they have another retirement account option like a 403b.
Personal Finance Habit 2: Pay yourself first (auto transfer your savings after you get paid)
If you’re in a position to save money beyond your 401k, I recommend automatically transferring the funds from your checking account to a savings or investment account after you get paid. Some companies also let you split your paycheck into different account automatically.
Check your cash flow to see when the best time is to make this transfer. I typically do it after the middle of the month when any large payments like my mortgage have already gone out of my checking account.
Personal Finance Habit 3: Check your credit score once a quarter
I use Credit Karma to check my credit score once a quarter, or if Credit Karma reports something new. (Note: I am not affiliated with Credit Karma.) This is a great way to see changes to your credit report, whether valid or not. It’s much better to catch an issue early, before your credit is pulled for a loan. This gives you time to address any problems that may be lowering your score.
Keeping your credit score high can have a big impact on your wealth. Excellent credit dramatically reduces the interest you’ll pay on a home or car loan, saving you a big chunk of money over the life of the loan. This is an area of financial health that is worth your attention.
Personal Finance Habit 4: Wealth Wednesdays – check your investments and rebalance
Once a week, my husband and I check our investment accounts and adjust if needed. We’ve gotten out of the habit of doing this and our balance of investments is off. One of our resolutions this year is to get back in the habit of checking our accounts each week.
Don’t forget to look at all of your accounts. It’s easy to forget about old employer 401k plans. I also have a bad habit of leaving money in cash instead of investing it. Avoid these simple oversights by checking in on your accounts regularly.
Personal Finance Habit 5: Check your checking account balance one a week
It’s important to keep an eye on your checking account balance. You can rack up serious overdraft fees if you accidentally overdraw your account. My bank has an alert system, so I get an email and app alert every Friday with my account balance. I also have it set to alert me if my balance falls below certain thresholds. For example, you might set an alert if your balance falls below $5000 (yellow flag) and one if your balance falls below $1500 (red flag). Obviously these values depend on your expenses.
Personal Finance Habit 6: Check your expenses once a month
In the past year, I started keeping a pretty close eye on our expenses. I don’t budget but I do want to make sure that we are spending on things that matter to us. I use and like Personal Capital for this. I actually track my expenses daily but monthly is just fine.
Personal Finance Habit 7: Set your credit cards to pay the minimum
If you haven’t already set your credit cards to automatically pay the minimum each month, do it! Obviously you should pay off the entire balance each month. This is just a backup in case you accidentally forget to pay. Auto-paying the minimum protects you against a late payment that could drastically decrease your credit score.
You should also set up your mortgage and any other loans to pay automatically. This really protects your credit score (and is also why you need to keep a close eye on your checking account balance.)
I learned this the hard way after my first baby was born. We missed a $5 credit card payment, resulting in a late payment on our credit report right before we closed on a house. It was SO stressful. Since then I have always had my credit cards set to auto-pay the minimum. (PS. If you are expecting a baby, here are my best tips to financially prepare.)
Personal Finance Habit 8: Reduce expenses
The lower your expenses, the more you can save and invest. You also need less to retire if you have lower regular expenses! For both of these reasons, I have been working to slowly lower our average monthly expenses. I use Personal Capital to track my expenses each month with a goal to stay under the previous month’s spending! It doesn’t always happen. Last year we had to buy a new furnace and I know there is a new refrigerator in our future this year. But my overall goal for this year is to reduce our average monthly expenses by 5% a month. I want it to be easy and I will just keep whittling away at this one every year!
Personal Finance Habit 9: Talk Openly
I strongly feel that talking openly with my family about money is important. As part of raising financially literate kids, I talk to my children about credit scores, our net worth, income and spending. My husband and I frequently chat about our investments, net worth, expenses and retirement plans. We make sure to talk to the kids about different ranges of income and the financial choices we make based on our values. I think it’s important to keep the conversation open and make sure kids have basic financial skills as adults.
How do I manage my finances better?
Whether you are early in your career or approaching retirement or somewhere in between, it’s important to have a good understanding of your finances. These basic steps will help you stay on the path to generating wealth. A few simple habits can help you avoid costly financial mistakes. Automation also helps you maintain consistency in saving and investing.
