If you fall into the 40% of Americans who make New Year’s resolutions, you’ve probably already given thought to self-improvement in 2019. While many people focus on improving their physical health in the new year, we recommend evaluating your financial health as well. There are many steps you can take to hit your money goals; start with the below to make 2019 your healthiest financial year yet.
Step 1: Set “SMART” Financial Goals… AND Write Them Down
We recommend following the SMART model to set powerful goals that you’ll actually achieve. Under the SMART model, set goals that are:
- Specific: Make sure your goals are clear and well-defined (making a goal to “be better with money” won’t cut it).
Example: “I will pay off my credit card debt in 3 months.”
- Measurable: If a goal isn’t measurable, you’ll have no way of knowing whether you were successful or not. In your financial goals, include specific dollar amounts and dates.
Example: “I will save $5,000 by June 1st to put toward a down payment on a house.”
- Attainable: Set a goal that you can actually achieve to avoid feeling discouraged.
Example: “I will bring my lunch to work four times per week in order to save money.”
- Relevant: Your money goals should be relevant to your life and current financial status.
Example: “Because I don’t have any debt, and I have substantial emergency savings, my next financial goal is to max out my IRA this year.”
- Timebound: Create accountability by setting deadlines for your goals.
Example: “I will set up a budget and start tracking my expenses by January 15th.”
How do you make SMART goals even more powerful? Write them down! Studies have shown that people who write down their goals are 42% more likely to achieve them than people who never put pen to paper. Finally, share your goals with a friend or family member who believes in you. This further increases the likelihood that you’ll achieve what you set out to do.
Step 2: Create a Budget
There’s a reason why creating (and sticking to) a budget is a top recommendation of financial experts and money advisors alike. A budget helps you prioritize spending and focus on things that are most important to you. According to Investopedia, a budget will help you do the following:
- Identify and work toward your financial goals. Tracking your money makes it easy to track your progress toward your financial goals. If you overspend one month, you can take steps to save more money the next.
- Avoid spending money you don’t have. By helping you track your money, a budget will help you live within your means and avoid crippling credit card debt.
- Save for retirement. A budget will serve as a reminder to set aside savings for retirement in an IRA or 401(k).
- Build an emergency fund. A budget will also keep you honest when it comes to setting aside money for an emergency fund, which should consist of 3-6 months of living expenses.
- Identify bad spending habits. Have you gotten into the habit of frivolous spending? A budget will help you identify if you’ve been spending money on things you don’t need.
- Breathe easy. Ultimately, a budget affords you peace of mind, helping you feel secure in your current financial situation.
A budget will set you up for financial success and is one of the first steps you should take on your journey to better financial health. Get started today with free apps like Mint, which will sync your accounts, track and categorize spending, and send you notifications if you reach your budget limit. Or, you can always create a budget using a template in Excel.
Step 3: Identify “Good” & “Bad” Debt; Focus on Paying Off the “Bad”
Do you know the difference between good debt and bad debt? It’s important to categorize your debt and focus on paying off the bad debt as soon as possible.
Good debt is an investment that 1) grows in value (like a house) or 2) will help you generate long-term income (like student loans for a college degree). Good debt tends to have lower interest loans, and the interest is often tax-deductible.
In contrast, you incur bad debt when you purchase things that 1) lose value as time goes on or 2) do not help you generate long-term income. A classic example of bad debt is credit card debt and payday loans, both of which come with high interest rates.
Step 4: Open an Individual Retirement Account (IRA)
An IRA is a great option when it comes to saving money for retirement, especially if your employer doesn’t offer a retirement savings plan like a 401(k). IRAs are relatively easy to open with the help of a reputable online broker or fund company, which typically don’t require minimums to get started.
Once you set up your IRA, you can make deposits any number of ways: for example, entering your bank account information (which is generally the best option), writing a check, or wiring funds. The amount you can contribute to your IRA depends on your age. In 2019, individuals under the age of 50 can contribute up to $6,000, while individuals age 50 and over can contribute up to $7,000.
Step 5: Continue to Expand Your Financial Knowledge
Another way to improve your financial health? Commit to reading one finance book per month (if that goal seems too lofty, aim to read a few finance articles per week). Slowly but surely, you’ll begin to better understand the nature of money and feel more confident when it comes to your personal finances.
Here are some great books — geared toward beginners — that will help you improve your financial health:
- 11 Personal Finance Books to Read Before You Turn 30 (Financial Post)
- Best Personal Finance Books for Beginners (Financial Mentor)
- 9 Best Investment Books for Beginners (TheStreet)
- The Top 5 Books Every Young Investor Must Read (Investopedia)
If books aren’t your thing, check out these 11 websites that will make you smarter with your money. Many of these sites give you the option to sign up for articles delivered straight to your inbox.
A financially healthier future is in reach; these five steps will help you set and achieve your money goals in the new year. Try them out and reap the benefits of a more secure 2019.