Reboot Your Personal Finances for the New Year

As of 2021, 54% of American adults are living paycheck to paycheck. According to numbers from late 2020, 21% of adults in the country have no emergency fund. 29.2% of people don’t save any part of their income. The average household carries $8,398 in credit card debt, and consumer debt—which includes mortgages, auto loans, credit cards, and student loans—is at $13.86 trillion.

Finances have a profound effect on the quality of our lives. It’s tempting to blame poor planning for financial instability, but the truth is much more complicated.

From surviving unemployment to unexpected expenses, debt can represent financial needs that are out of someone’s control. A lack of savings can be the result of never receiving financial education or being denied the resources that others are able to take advantage of. Having a lower income isn’t as easy as getting a better job—from being a full-time caregiver to lack of specific job qualifications, working for a lower wage is not always an issue of personal control or planning. Many people in America are unable to save because of low income and high debt—problems not easily solved.

However—if you find yourself in a position where you’re able to improve your financial outlook, making a solid plan is a great place to start. And what better time than the start of a new year? We’ve broken down financial planning into three large categories: beginner, intermediate, and advanced. Everyone is in a different place—we want to meet you where you are!

Beginner Personal Finance Tips

Just getting started with your finances? Every journey must begin with a first step, so here are some things that you can do to get you headed in the right direction.

1. Get a picture of where you stand.

The first step to handling your money: understand what you have or own, and figure out what’s stopping you from saving more or paying down debt

• Write out your monthly expenses including housing, food, utilities, debts, childcare, and other recurring expenses.
• Then, look at your income. Write down every source of incoming cash.
• Tally up how much you make per month and compare it to what you spend.
• Review your free annual credit report to look for errors, sources of debt, and any other debts you should be aware of. Don’t worry about your credit score—we’re just getting an idea of what you owe.

2. Start a budget and a savings plan.

After taking stock of your financial situation, create a budget. This is simple—take the list you wrote out above for monthly expenses, and make sure everything is accurate. On this first pass, don’t stress out about cutting things down or eliminating spending. We’re just trying to get a picture of how you can spend your money.

Now think yearly or long-term, like building an emergency fund, paying off debt, saving for a house or car, children’s education, vacations, gifts, etc. Add those up, divide by 12 months, and put that number into your monthly budget.

If you’re tech-inclined, this is a perfect opportunity to use digital finance tools. Apps like Mint, YNAB, and Credit Karma can help you keep an eye on where your money goes and how your credit is changing. Keep in mind that there are more than a few ways to budget your money, so it might take a few months to find a method that works best for you.

Now that you’re set up, take a look at everything you’ve written down. Are there places where you can cut expenses? Did you look at anything and think, “Why do I pay for that?” Try and cut it out for the next month. It might take a couple of months before you’re totally comfortable with every category. Don’t be afraid to make your budget work for you!

3. Work to eliminate debt.

One of your early priorities should be paying down any debt you may have, as this can help improve your credit score and free up money each month that can go towards saving for financial goals.

Prioritize the debts you’ll pay off first. If you like the instant satisfaction of paying something off, start with the smallest debts—this is called the “snowball” method. For some, it provides the positive reinforcement they need to continue paying down debt.

If you’d like to pay the least amount possible over time, start with the debts that have the highest interest rate—this is called the “avalanche method”. It’s helpful for those who are motivated by minimizing the impact that debt has on their finances, but it can be hard for some to keep up their motivation if the debts are large and will take a lot of time to pay off completely.

Intermediate Personal Finance Tips

Already have the basics down? Great! Here are a few additional tips that you can implement in the new year to level up your financial standing.

1. Familiarize yourself with financial basics.

As you get further along in your journey, you’ll want to familiarize yourself with financial concepts like:

• Compound interest basics
• Debt interest basics
• Types of financial products and accounts, including the best savings accounts and best credit cards on the market
• Retirement plans and their differences

The internet will be your friend when it comes to researching these topics. Resources like the Amplify Blog, Investopedia, and NerdWallet are great places to start.

2. Start saving for retirement.

The earlier you discipline yourself to do this, the more secure your future will be. Your best option is probably the 401(k), 403(b), or 457 plan offered by your employer. If you can, contribute up to the maximum amount. If you’re 50 or older, take advantage of additional catch-up contributions. Your credit union or financial planner can point you toward a traditional or Roth IRA that offers optimal tax advantages.

3. Learn the basics of investing. 

It’s not all about saving for retirement—as you pay off debts and optimize your monthly spending, you may have money each month that you could invest in the stock market or other investment vehicles. Before you start investing, research your options and determine which one works best for your risk tolerance and financial situation. If you feel overwhelmed or completely lost, talk to a financial advisor.

Advanced Personal Finance Tips

Maybe this isn’t your first rodeo and you’re looking to level up your skills! If you’ve already met the financial goals outlined for beginners and intermediates, you’re probably ready to take on some more advanced personal finance strategies.

1. Use your savings wisely.

If your emergency fund and your retirement accounts are where you want them to be, it may be time to start saving for something big! This might be saving to purchase your first house, buy your dream car, or see your kid go off to college. Follow these steps to incorporate this purchase into your budget:

1. Figure out how much you’ll actually need—plan for a generous amount, not the bare minimum.
2. Choose a deadline.
3. Divide the total amount needed by the months it will take to reach your deadline.
4. Incorporate that number back into your monthly budget—do you have that amount? Can you save more and reach your deadline faster? Should you adjust your deadline to be further out?

When you plan for these big expenses, be sure to frequently check back in with your budget and timeline. You don’t want to get off track and find yourself in financial trouble after all of your hard work and dedication!

2. Max out your retirement contributions.

If you’re already saving for retirement, take it a step further by maxing out your retirement contributions. The more you save now, the more time your money will have to grow, thanks to compound interest. How much you can contribute to your accounts each year will depend on what type of retirement plan you have.

3. Explore more investment options.

Once you’re in a comfortable financial situation and understand the basics of investing, you may wish to explore more investment options, including active investment opportunities such as real estate. New to investing? Start here!

4. Educate yourself.

If you’re really looking to increase your understanding of financial strategies, pick up a few books about investing or personal finance and read them over the next year. You’ll never know what smart strategies you may learn about or what may spark a million-dollar idea!

5. Practice random acts of kindness.

Having complete control over your money brings you the added benefit of allowing you more options for giving it away. Lift your own spirits by occasionally buying breakfast for the person behind you in the drive-through, picking up the lunch tab for a veteran, or setting up a monthly donation to your favorite nonprofit.

New Year, New Financial Future

One other word of advice: while the optimism of the New Year is always a good thing, it may not last all year long. Here’s what will last: the long-term effect of your financial planning. If you make it a habit to look at your budget every month, you’ll also be able to keep track of your success! If you go over your budget one month, pick yourself back up and continue on your journey to a better financial future. You’re worth it!