Financial Resolutions with Little Effort but Big Rewards
Happy New Year! I hope your finances had as great a comeback in 2023 as mine did! Now that it’s the start of a new year, you’re probably setting some resolutions for yourself. So be sure to include some financial ones, too. Here are some practical ones that require little effort but reward you handsomely in the long run.
Review how much you spent in 2023 by category
Nowadays, most banks automatically categorize your annual credit card expenses for you. In fact, they likely even email it to you in the first couple weeks of the new year. If not, search for it in your account online, usually near where you find your monthly statements. Remember to look through your annual reports across all your credit cards.
Once you get your annual reports, look for categories that look larger than you might expect! If you are staring at numbers that look surprisingly high, don’t fret. Just set a goal to cut back on those categories in 2024.
Another way to track your expenses is using a budget tracker like Mint.com or Empower.com. These are great tools to track your net worth, budgets, and more over time. Mint is being moved over to Credit Karma by Intuit, so some features are missing. But I assume the missing features in Credit Karma will return at some point. In the meantime, Empower is a great alternative.
Review investment performance
Similar to reviewing your expenses, open up your brokerage accounts and look at their 2023 performance for each account. Compare their performance with other indices like the S&P 500 and the Nasdaq. For reference, the S&P 500 returned 24.2%, and the Nasdaq returned a whopping 43.42% in 2023! How did your investments compare? If they underperformed the S&P 500, consider reallocating your investments.
Calculate your net worth
As mentioned previously, budget trackers like Mint.com or Empower.com are also great tools for tracking your net worth. Manually tracking all your accounts in a spreadsheet year-over-year is just painful and easy to get wrong due to human error. These tools aren’t perfect either, but knowing your exact net worth at the snap of your fingers also isn’t a necessity. Tracking your net worth isn’t meant to bring you down or, conversely, be a bragging point. What’s important is knowing where you are today, where you need to be in 6 months, a year, etc., and where you need to be by a certain age. This information will help you create a financial plan by working backward (e.g., if I want to retire by age 60, I need to increase my net worth by XYZ every year).
Create an emergency fund
If you don’t have enough cash to cover 3-6 months of your household expenses, consider setting aside more cash in case of an emergency. Better yet, you can create a separate bank account specifically for your emergency fund so it becomes easy for you to track its balance and remember not to touch that account. Finally, I love automating as much of my finances as possible. So, if you set this as one of your financial resolutions, make it easy on yourself and automate this goal! Log into your bank account and set up a recurring transfer into your new emergency fund account. Once you do, you will quickly finish this resolution by year’s end!
Set aside funds for vacation
You can create a separate bank account for a vacation fund like the one you created for an emergency fund. Set up a recurring transfer into this bank account so that you automatically save enough for your dream vacation!
Increase your 401(k) contributions
Any increase over your previous contributions is a win! It doesn’t matter if it’s “just” another $500. Do it if you can.
For the overachievers, aim to max out your 401(k) contributions with $23,000 for 2024. And if your employer offers the Mega Backdoor Roth benefit, you can max out your 401(k)s at a whopping $69,000! If you want to learn how to do this, check out my guide here.
Invest in a Roth IRA
Roth accounts are retirement accounts funded with after-tax dollars but grow tax-free! The younger you are, the more desirable Roths are. In 2024, the maximum contribution limit is $7,000. However, there is an income limit (read more here). If you are at that limit, you may be interested in doing a Backdoor Roth IRA, but be sure to seek professional guidance before doing so.
Contribute to a 529
If you plan to pay for tuition for yourself or a family member, a 529 is a great way to save! 529s are similar to Roths in that your investments grow tax-free. Additionally, withdrawals are tax-free as long they go toward qualified expenses. Depending on your 529 plan and your state, you may even be eligible for a tax deduction.
Pay down debt
First, you should know exactly how much debt you have, what each balance is, and what their interest rates are. Do you have student debt, credit card debt, mortgages, auto loans, etc.? If you don’t know, make a resolution to identify all of this.
If you have credit card debt that rolls over monthly, paying off that debt should be at the top of your New Year’s resolutions. Otherwise, reducing your debt with the highest interest rate is always beneficial.
Set up automatic investing
Consider setting up automatic investing if you want to increase how much you invest in 2024. Automatic investing is exactly as it sounds and is offered by all the common brokerage firms nowadays. All you have to do is log into your investment account and find the setting to transfer a fixed amount into whichever funds you wish on a recurring basis. Read through my guide here for an example of how to do this with Fidelity. Other firms have similar steps.
Final words
Hopefully, some of my suggestions will inspire you to take on a few financial resolutions for 2024! If you decide to set a goal for next year or if you have any other resolutions I didn’t cover, please share them with the community below. Have a happy, healthy, and prosperous year to all of you!
