New Year, New Financial Goals
The New Year is a great time to set financial goals, such as savings, investment, or spending targets you hope to achieve over time. Your stage of life usually determines the goals you wish to achieve, whether they’re short-term goals like saving for a major purchase or vacation or long-term goals like buying a home or investing for retirement. You might be concerned about an economic downturn or what to do if your financial circumstances change. However, it’s less about the exact numbers of your financial goals, and more about the process of establishing good spending and saving habits.
Follow these eight tips to help you set your financial goals for the coming year and create a plan for successfully achieving them:
Create a financial plan: Early in January, review your financial statements from 2022 and look for patterns. Financial apps can help turn data into revealing illustrations. Use this information to map out your financial plan for the coming year. Set short (6 month to a year), mid (5-10 years), and long (10 or more years) term goals and target dates to achieve those goals. Start with at least two financial goals that are doable, either for the whole year or each month.
Create a spending plan: A lot of people run into debt and financial issues due to poor planning and living above their means. First, gather all your fixed and flexible expenditures, projected earnings, plan for savings, and possible investments. This will give you an outlook on your finances for the entire year. Next, create a spending plan that includes all your monthly expenses. Categorize your expenses as critical, need, or want. If funds get tight, you can use this system to prioritize spending. It might also be helpful to set a maximum limit for total expenses to avoid overspending. Try using this budget worksheet to create a budget for your expenses and stick to it.
Reduce your debt: The interest charges on credit cards, loans, and other debts eat up cashflow that could be used for other financial goals. Follow these tips to help you pay off credit card debt:
- Snowball Approach: Focus on paying off your smallest balance first while making minimum payments on the rest. Once the smallest balance is paid off, roll the money you were paying into the next balance.
- Avalanche Approach: Focus on paying off your highest interest debt, while making minimum payments on the rest.
To lower your interest fees while you pay your debt, a balance transfer or debt consolidation loan might help you. For additional information about credit counseling services, visit our Finance & Lending Education webpage. Once paid off, be conscious to avoid using credit cards, Buy Now, Pay Later loans, payday lending services, and other debt vehicles. If you are having issues with a debt collector, contact the DFPI toll-free at (866) 275-2677 or Ask.DFPI@dfpi.ca.gov or File a Complaint online.
Pay off your student loans: The average student loan debt in the U.S. is $37,693. Millions of borrowers took advantage of the COVID-19 repayment pause and stopped making payments. Many expect the Federal Government to forgive at least some of their debt. That may happen, but in the meantime, prepare a plan to pay off what you owe. Refinancing could help some borrowers but be careful of using private lenders to refinance. Federal loans have certain safeguards like Income Driven Repayment (IDR), deferment, and forbearance that are no longer applicable after you refinance with a private lender.
Start an emergency fund: An emergency fund is money set aside for an unforeseen dilemma, such as getting laid-off from work or medical problems, or unexpected expenses such as car repairs or recovering from damages caused by a natural disaster. Saving for an emergency fund should be a top priority. Save three months of income at a minimum. Six months (or more) is better.
Start a retirement savings plan: For most people, retirement savings plans built during your working years are an essential part of securing your financial wellbeing in retirement. Starting can be overwhelming, but the key is to start. Once you decide to begin, create a plan, gauge your risk-tolerance, and, if you need help or advice, work with a licensed broker or investment advisor.
Save a down payment for a home: For most people, a home is their most significant purchase and investment. The larger the down payment, the more freedom and flexibility you have for the life of the loan. A 20% down payment is the standard for a good mortgage. Remember, having a mortgage is a far savvier investment than paying rent. For additional information, read the DFPI’s Path to Homeownership.
Improve your credit score: Your credit score represents your creditworthiness. The higher your score, the better terms you can get on loans. When applying for a mortgage, or anything that requires a loan, a lower interest rate saves you money, and an improved credit score helps you qualify for lower rates. Reviewing your credit report helps you know where you are and how to better manage your bill payments and expenses.