Financial Resolutions for the New Year

Each year when the holidays arrive and the new year is around the corner, we reflect on our decisions and experiences over the past twelve months (perhaps especially after 2020!): what we did well, what we learned, what we could have done differently, or how we want to improve for the next year. Improving organizational skills is a common theme for many, as we strive to get ahead of what’s coming while tidying up what’s already happened. To help as you think through ways to better organize your life, let’s address the ways in which you can improve and check in on your financial life so you can start 2021 feeling proactive. 

Here are our top financial resolutions for the new year.

• Check Your Credit 

It’s easy to forget to check your credit score and report, especially if you haven’t needed to apply for additional credit recently, but it’s still important to regularly check in and see how your score is doing. Your credit score is an overall indicator of your financial health and paying attention to it can help you know what you’re doing right and the ways you could be improving. The factors that go into determining your score include payment history and credit usage (available credit vs. outstanding balances), so you can make sure you’re staying on track with your payments and not over-leveraging yourself. It’s also a good idea to routinely check your credit report so you see what lenders are seeing, as well as identify any inaccuracies on your report or potential fraud. Even if your credit score is in a desirable range, it’s important to make sure all of the accounts, addresses, and phone numbers listed on your report are, in fact, yours. You can check your credit report from each bureau for free once a year without it causing a negative impact on your score (freecreditreport.com).  

• File Your Taxes Early

Even though the tax filing deadline is consistent from year to year, it still manages to sneak up on us! You can avoid the trap of procrastination by gathering your information together as soon as the documents become available. You’re typically able to file your tax return as early as mid-January (the IRS announces the official date they begin accepting returns every year), but you’ll need to wait until you’ve received your W-2, 1099-INT or 1099-DIV showing your investment income, mortgage interest statements, etc. If you have a relatively straightforward financial situation there are many websites that can efficiently guide you through the process of preparing your tax return and electronically filing it with the IRS. Reach out to your CPA at the start of the year if your finances are a bit more complicated to see what they need from you and get them your documents early – they’ll appreciate you not joining the crowds and waiting until the last minute! What’s more, the earlier you file, the sooner you’ll receive your refund (should you be eligible)!

• Reconsider Recurring Charges: Contribute Instead

When it comes to budgeting and staying on track, pesky recurring charges can add up quickly. Often, we agree to automatic payments for things we think we’ll use regularly, but if we don’t keep up with them, they can easily be overlooked and even forgotten about on our account activity. Take a moment to go through your recent debit and credit card statements to see if you’re repeatedly paying for a service you’re not actively using, like a monthly gym membership or an annual HBO subscription.

On the other end of this spectrum is reviewing and/or setting up automatic savings contributions. If you find yourself cancelling some recurring charges, this might be an opportunity to turn that amount into an automatic, recurring contribution to a retirement or savings account. Regardless of where your account is located, you can schedule a regular payment to pull funds from your checking account and deposit or contribute them into another account that is designated for your future. Automating your savings also applies to contributing to your company retirement plan through salary deferrals via your paycheck. It’s a good idea to review how much you’re contributing on a regular basis and, if you can, work towards contributing the maximum amount ($19,500 and $26,500 if you turn 50 during 2021).

• Reduce Interest on Debt and Increase Interest on Savings

When it comes to interest, seek out lower rates on debt and higher rates on savings. Consider reaching out to your credit card company and other creditors to request a lower interest rate. If you have a consistent payment history and are in good standing with your accounts, they may be willing to negotiate. The worst they can say is no, so there’s no harm in asking. If a lower rate isn’t an option for your existing cards, you may be able to take advantage of a promotional offer. Sometimes these are offered by your current creditor to encourage you to open a new account with them or from another company to gain your business. Depending on your credit score, you may even be approved for 0% APR (Annual Percentage Rate) on your new credit card for the first 12 to 24 months. If you have debt on different cards, you could potentially do a balance transfer and consolidate your debt on the new card with your lower interest rate. 

You may have noticed that interest payments on your savings totals just a few cents. If you want to start earning more on your savings accounts, you’ll need to look for a high-yield savings account. These are offered by national banks, local credit unions, and online banks too, you just have to find the right rate and fit. As opposed to APR, you’ll be looking for the highest APY (Annual Percentage Yield). High interest savings accounts normally pay 20-25 times the rate of a traditional savings account, so they’re definitely worth taking the time to research. Beyond the APY, keep in mind deposit and minimum balance requirements, as well as any account maintenance or annual fees.  

Beyond these suggestions, there’s a variety of ways to prepare your finances for the new year. Even just organizing your financial documents, downloading an app for your bank or credit card, or revisiting your budget can help you feel more prepared to take on what comes next in 2021. Reviewing your personal financial situation or reaching out to your financial advisor are important ways to ensure you know where you stand and that you’re doing everything you can to benefit your current and future financial goals.