Nicole Lapin: Financial resolutions for the New Year

January first offers new beginnings and the burden of self-improvement. Around 45% of Americans make New Year's resolutions.

Financially themed promises for improvement tend to be among the most popular resolutions.

Financial expert Nicole Lapin is here with easy to obtain financial goals we should all have.

  • Pay Bills Right After Receiving Your Paycheck

Taking care of monthly obligations before allowing yourself to indulge in any luxury expenses is a helpful budgeting strategy, giving you a better sense of what you can truly afford and what you can’t. It also helps you avoid ever having a late payment reported to the major credit bureaus, which is one of the easiest ways to damage your credit score.

The best way to ensure success is to set up automatic monthly payments from a deposit account. This will add discipline to the process without you having to think about it.

  • Make a Realistic Budget & Stick to It

The fact that we’re on pace to rack up roughly $80 billion new credit card debt during 2016 is perhaps a bit less surprising when you consider that only about 40% of adults have a budget, according to the National Foundation for Credit Counseling. But both statistics also signal the need for greater urgency on our part.

The best way to make a budget is to gather your bills from the past few months and make a list of all your recurring expenses. Then rank them in order of importance, with true necessities such as housing, food and health care obviously taking the top spots. After that, you can simply cut from the bottom of your list until your take-home exceeds what you plan to spend. Finally, keep track of your ensuing monthly spending to make sure you’re abiding by your budget.

  • Add One Month’s Pay to Your Emergency Fund

Roughly 54% of Americans do not have a rainy day fund, according to the Financial Industry Regulatory Authority. Like someone without insurance, folks who lack an emergency fund are merely tempting fate and putting themselves at risk of financial catastrophe in the event of prolonged unemployment or significant emergency expenses. Building up some monetary reserves should therefore be one of the first orders of business for any financial makeover.

While we recommend ultimately building a fund with about 12 to 18 months’ take-home income, it’s important to understand that won’t happen overnight. You needn’t put the rest of your financial life on hold until your emergency fund is complete but rather chip away at it over time. That’s why we recommend starting with the goal of adding a month’s income to your savings over the next year. This will help protect you from incurring more debt if hit with a minor emergency expense. And once you’ve adjusted to this new component of your budget, you can gradually start socking away more and more.

  • Change your money mindset

Failing to fulfill a resolution is to fail ourselves. Most of it is rooted in excuse-driven thinking and ill-informed behaviors that prevent us from gaining a new, healthier perspective on what we’d like to change so we can actually go ahead and make the change. Personal finances are no different. When we make excuses, it could be on account of a lack of financial literacy: an accurate knowledge of how money works, and how to better put that know-how into motion in our daily lives.

So if there’s only one resolution you make (though you should make several), remember that less can mean more. Less credit card spending means more chance at staying out of debt; less spending on unnecessary purchases (like eating out) means more money to save.

Think about what you’d like to save for (college tuition, having more children, upgrading to a new home) and consider how many months or years you and your partner would need to save up. Once you’ve determined how your money is being spent plus how it should be spent, start setting goals in tandem with a more focused, positive outlook.

  • Use Different Credit Cards for Everyday Purchases & Another for Debt

The Island Approach involves isolating unique financial needs on separate financial accounts, as if they are a chain of islands. The most basic application of this strategy is using a rewards credit card for everyday purchases that you can repay in full by the end of the month and a 0% APR card for revolving debt.

Doing so enables you to get the best possible terms on each card rather than settling for average terms on a single card. It will also help you reduce the cost of your debt, considering everyday purchases won’t be inflating your average daily balance. And if you ever incur interest on your everyday card, you’ll know you spent too much that month.

  • BONUS: Make resolutions a FAMILY EFFORT

Research shows that more than three-quarters of parents aren’t always truthful or forthcoming when telling their kids about money matters — not to mention that our bad money habits may be a bad influence on them (and ourselves).

Make financial planning a family endeavor. Find opportunities to teach your kids about saving money, spending less and the value of earning compound interest; teaching them about these basic money concepts can help give you the clarity you need to focus on your family’s finances for the New Year.

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