No time is better than the New Year to have a symbolic “fresh start.” Today we want to talk about starting the new year on the right financial foot by sharing fifteen ways you can improve your finances in the new year.
Not all fifteen will be applicable to everyone. Nevertheless, I hope you pick at least one area of your personal finances and commit to improving it from where it currently stands.
Instead of putting all fifteen ideas in one post, we will have ways 1-5 today, 6-10 tomorrow, and 11-15 on Thursday. This allows us to dive into each item a little deeper. Without further delay, here is the first five ways you can improve your finances in the New Year.
1) Track your Spending
If you are not aware of where your money is being spent it’s hard to improve your personal finances. Tracking expenses should be the first step you take in improving your finances. There are many ways to do this from online apps like Mint and Power Wallet to using an Excel Spreadsheet.
If you rarely use cash you really won’t have to save receipts. Instead you can download your transactions from your bank or credit card’s website. This makes it relatively easy to put them into a standard format.
Tracking your spending doesn’t have to take a lot of time. I update my expense/income tracking spreadsheet once a month. That means I only have to do it 12 times a year, spending about 1-2 hours on it per month.
2) Start an Emergency Fund
Besides tracking expenses, starting an emergency fund is one of the best ways to improve your finances. I think we are all aware of the potential for unexpected expenses and how stressful those situations can be.
Starting small with realistic saving goals can help make an emergency fund achievable. First, start a savings account with $100. Make an initial goal of adding $100 or $200 a month. This may seem like a stretch for some people, but it really is important that you start building your emergency fund. Hitting milestones such as $500 or $1,000 in an emergency fund can be encouraging and provide motivation to continue to build up your fund.
In the perfect world people would have six to twelve months of income or expenses in an emergency fund. That number certainly can seem daunting (it seems daunting to me, at least) but pursuing smaller goals of $500, $1k, $5k, is where you should start.
3) Contribute to your Health Savings Account (HSA)
Many health insurance plans are starting to include an HSA. If your health insurance has an HSA and you don’t already contribute to it, consider starting in the new year. HSAs offer tax advantages as well as a “medical emergency fund” in case you find yourself or a family member in the unfortunate position of owing thousands of dollars in medical bills.
Some people respond to this suggestion by saying I’m healthy so I don’t expect to have any major medical bills. This is bad logic for not contributing. The tax benefits of an HSA alone should motivate people to start contributing. It’s important to keep in mind that one night in a hospital can easily max out your deductible and out of pocket max. Take some of the stress out of these unfortunate situations by having the money already set aside in your HSA.
4) Contribute to a Retirement Account
If your employer offers a 401k or 403b, by all means contribute to it. Some employers will even match your contributions dollar-for-dollar up to a certain amount. If you don’t have a 401k or 403b retirement account, open an IRA or Roth IRA retirement account. Setting up automatic contributions will make saving for retirement even easier.
Already contribute to your 401k or 403b? Consider upping the amount you contribute or opening an IRA account. There are, of course, other ways to save for retirement such as building equity in a home and/or rental property, doing some individual investing in dividend-paying stocks, and even building businesses that can be sold for a lump sum.
5) Make Credit Cards Work for You
When I was in college I had a travel reward card that I used almost exclusively for a couple of years. When I finally got around to checking my rewards balance I realized I have what appears to be enough for half of a round-trip flight. That’s when it hit me: I have been using a really crappy rewards card.
Since then I have almost exclusively used my Discover card, which offers 1% cash back on every purchase, 5% cash back on select purchases, partner credit cards, and more. I wrote in more detail about why I love the Discover it card in this post if you are interested in learning more.
I also recently signed up for a Barclay’s credit card that offers $400 in travel rewards when you spend $1,000 within 90 days of signing up. My wife and I should easily hit this amount and it will help fund a much-needed vacation in 2015.
The first step, of course, is to get out of consumer and credit card debt. Once you are out of credit card debt you can start making credit cards work for you instead of the other way around.
Do you plan on doing any of these five things to improve your finances in the New Year?
Look for part 2 tomorrow and part 3 on Thursday for more ways to improve your finances in the New Year.
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The first five are spot on! I wish we could contribute to an HSA but our crappy employer-sponsored insurance doesn’t offer it. We also just opened a Barclays card and are looking forward to some great travel rewards!
colormefrugalAh sorry to hear about the HSA. I bet that you will eventually have it as an option. I think it actually can be cheaper for the employer, but don’t quote me on that. HSA is the ONLY option we get offered at my work.
I’ve been daydreaming about vacations today that I can use with my Barclaycard rewards!
Tracking spending can involve a little effort but it’s absolutely necessary. I utilize the download function as well at my bank. Sure, maybe you will need to categorize the expense manually or break out the expenditure into categories but will save you a ton of time. Super useful
BudgetforMore Great point! I also think it gets a little easier the more you do it. Now that I’ve been doing it for a year and a half I know how to do it fairly efficiently. I use the download files as well from my credit cards and bank, and then I format the data the way I want.
These are all solid things to be doing DC! While all are important, I really like that you pointed out the HSA as something to pursue. We’ve been seeing that more, not only because it can be a medical EF so to speak, but for the tax issue as well. We’re ramping up on #5 this year and have a few things in the works.
FrugalRulesI absolutely love my HSA, especially as a young adult. I had one year where I literally had one claim for $50. That’s it. Then the next two years I had my unexpected surgeries. It’s situations like those that make me happy to have a medical EF, as well as talk about it with as many people as I can.
Nice tips. I especially like making credit cards work for you. By using them responsibly, you can get so much out of them!
CSMillennialThis is so true! I started churning travel rewards cards recently and I’m looking forward to a nearly-free vacation.
I just started tracking my spending again. I need to redo my budget now I just have to figure out where my money is going. I also need to contribute to a retirement account this year.
SingleMomIncomeTracking your spending is so beneficial! I know you have a lot going on, so hopefully you can find some time to start doing it.
All great advice! Sometimes it might just start with some honesty and admitting that there is a problem. Sadly, I know quite a few people who have no idea how much money they have (or don’t have), don’t even look at their bank statements, and are in complete denial about anything financial. If they could start with some of these simple, but, for some, very difficult steps, their life and stress levels would diminish immensely! Can’t wait to read the rest!
RobertaRenstromNyquistAh yes, these are all valuable things to do and I definitely think “baby steps” are important when it comes to personal finance. I think tracking expenses should be a top priority.
We have tracked our spending and done a monthly zero sum budget for quite a while. It works! This year, we’re doing all kinds of churning for our upcoming travel plans.
Holly at ClubThriftyI’ve been doing it for a year and a half and it’s been so beneficial. It’s also crazy to see just how much of our income goes towards student loans and our mortgage. I credit you with getting me interested in credit card churning!
The best thing I can do to make credit cards work for me is to leave them at home. LOL.
DebtChroniclesHaha well to each their own. I’m getting a bit obsessed with credit card churning for rewards…
I just changed my HSA contributions to go to Vanguard funds. If we max it out for the next 20 years, we should have enough health savings to pay for medical care when we get old. At least that’s my plan. I was not aware that at age 65, you can use that money for anything, penalty free, subject to income taxes. So if we aren’t sick, it will add to our retirement savings. I keep liking HSA’s more and more the more I research them.
EyesonthedollarGreat thinking, Kim. I definitely plan on maxing out my contribution indefinitely. Either we’ll need it now for claims that come through or we will be saving for a “medical” retirement fund. I love it!
“The tax benefits of an HSA alone should motivate people to start contributing.” Absolutely! I love the HSA we set up several years ago, partly for this very reason.
Brian @ Luke1428Even with maxing out my insurance the past two years I still have a sizable amount in my HSA account today. I can’t imagine how much you could sock away if you didn’t incur many claims.
Tracking spending is one of the hardest but most essential first steps in financial health, so I love that you made it #1. I have been using Moven, and for my clients who have a hard time tracking spending, I recommend it because it is a prepaid card, so we put their “extra” money on it and when they run low, they know that they have to check themselves for the rest of the week/month. I also love the focus on the HSA. Another great benefit of the HSA is that even if you leave your employer, it stays with you.
blonde_financeI also love that the HSA stays with you, definitely a huge benefit. I started to track my spending a year and a half ago. I could have started much earlier, but unfortunately I kept telling myself it was too time-consuming and that I had other priorities.
One of my greatest lessons learned last year was tracking my spending. So happy we did it. It was easy to see where everything was going by using our credit card for most purchases and then paying off the bill at the end of the month so we were not incurring additional debt.
Raquel@Practical Cents I started tracking my spending a year and a half ago and I’m glad I did. It’s really helped us see where our money is going and whether we need to make some adjustments or not.
I don’t have an HSA option, so that is out for me. Right now, I am having credit cards work for me after I worked for them for so many years. The relationship is good so far!
DebtRoundUpAh that’s too bad about the HSA. It seems like the market is really headed that direction, though, so I wouldn’t be surprised if you had the option in the future.
Hoping to go visit my bf in Europe this year entirely with credit card rewards. We’ll see how it goes.
brokeandbeauThat’s a great goal and from what I’ve been reading, it’s definitely possible. Best of luck!
I love all of these tips, DC. But my favorite is #2: Start an Emergency Fund. It’s something so many people overlook or don’t want to do because they think it’s silly to have money sitting in a saving account, earning pennies at best. I would argue that you are comparing apples to oranges when you compare your emergency fund against your retirement fund. Your emergency fund is there for emergencies … not to fund your retirement or new house goal. My emergency fund has saved me numerous times and more importantly I didn’t have to touch my other savings to cover any emergencies. Looking forward to seeing the rest of your tips! :)
ShannonRyanI really like your ‘apples to oranges’ analogy. It really isn’t comparable, because it’s not meant for long-term wealth generation or appreciation; it’s meant for emergencies. I’m glad you enjoyed the first five tips!
Great post! An emergency fund is SO important. Many of my friends don’t have one, and it really explains why whenever a surprise expense pops up that it is like the end of the world to them. I just can’t live like that.
SenseofCentsI doubt that most of my friends have an emergency fund, but it can definitely be difficult for young adults to save for one. It requires a lot of sacrifice (either cutting expenses, increasing income, or some combination). I’ve been on both sides of the fence and I feel much better with that money set aside for when an emergency arises.
The HSA is a great choice for those that have the option. And you’re right, it’s definitely headed in that direction. I think there is some reluctance because people have become familiar with and accustomed to PPOs, but the HSA qualified HDHP plans have helped my wife and I save about 3k over the past two years. I think if people understood more about them (like how they rollover from year to year), they would be way more popular.
ImpersonalFinanceWhile people have become accustomed to PPOs, it might not be their choice down the road. The only plan I’m offered is an HSA, and if it means employers can save some cash I think they’ll move towards them. I do think they are good for consumers, though, because of the built-in tax advantages.
I really have to get on opening an IRA. I’ve been putting it off for a while and that’s not good. I update my spreadsheets once a month as well, but I would like to be more specific with my categories since I don’t only buy groceries at Target. At the end of the year it doesn’t give me the most accurate view of my spending.
Nice list! I just applied for a higher interest savings account as my rate was pretty low, it takes a minute online so it’s worth it.
I’m taking full advantage of having credit cards work for me this year. I started last year and got a lot of travel out of it. Thanks for the tips!
Beachbudget I just started with the travel rewards cards this year and I’m excited for some free/cheap travel!
I need to get better at adding to our hsa on a regular basis. We r pretty healthy and so I tend to forget to add to it and figure I will just use our regular savings if I needed to. Thanks for the great reminders.
We don’t qualify for HSA, if we did I would max that out. The ideal use for credit cards is that it rewards you and you never know the interest rate.
I am still trying to get in the rhythm of doing some of these things you listed. Retirement account, tracking my spending and Emergency fund are among the priorities right now as I was not doing any of these before.
I’ve been avoiding tracking my spending, mostly because I’m scared to see just how I spend my money! Haha, I know it must be done one of these days, though.
You just reminded me, I need to look into an HSA! Not sure if my husband’s employer offers an HSA along with his insurance.
I’ve definitely got to beef up my e-fund, pronto! An expected death in the family has completely derailed us and we actually went into more debt for the first time in forever :/.