Roughly 80% of Americans plan to make New Year’s resolutions for 2020, according to a new WalletHub survey. This time of year, it seems we are taken by the spirit that led Benjamin Franklin to advise: “Be always at war with your vices, at peace with your neighbors, and let each New Year find you a better man.”
We all have our fair share of vices and room for improvement, especially when it comes to money. So it’s unsurprising that financially-themed resolutions are among the most popular made each new year. In fact, nearly 4 in 10 people plan to make a financial resolution for 2020, and money trails only health in resolution popularity.
But fewer than 50% of resolution-makers expect to keep their vow for a full year, which is not a good sign for hopes of improved money management. Neither is the fact that more than 7 in 10 people admit to having cheated on a New Year’s resolution in the past.
Don’t be discouraged, though. WalletHub has your back. We put together a list of the top financial New Year’s resolutions to make for 2020, plus a playbook for making them a reality.
Top financial resolutions for 2020 — how to keep them
- Repay 20% of your credit card debt
Americans owe way too much credit card debt: over $1 trillion overall and roughly $8,700 per household. That debt is extremely expensive, too. Something eventually has to give. And you’d much rather that be your outstanding balance, paid down on your own terms, than your ability to afford monthly minimum payments and, in turn, your credit score. So it’s time to get serious about getting out of credit card debt.
Some of the other steps mentioned here – including budgeting, automation and the Island Approach – will help in terms of reducing your future reliance on debt. But the problem of what to do about existing balances still remains. The answer for people with at least “good” credit is the combination of a 0% balance transfer credit card and a credit card calculator, which has the potential help you save hundreds of dollars while getting out of debt months sooner than you would otherwise.
But it’s probably best to start small. So we recommend making a plan to pay off 20% of what you owe over the course of 2020. That would amount to about $1,740 for the average household, requiring monthly payments of $145 with a card offering 0% on balance transfers for at least 12 months. You can use a credit card payoff calculator to crunch the numbers in your situation, and if you can afford higher payments, by all means make them. The sooner you can reach debt freedom, the better off your wallet will be.
- Add one month’s pay to your emergency fund
Almost half of Americans do not have a rainy-day fund, according to the Financial Industry Regulatory Authority. Like someone without insurance, people who lack an emergency fund are tempting fate, putting themselves at risk of financial catastrophe in the event of unexpected unemployment or major medical expenses. So building up some reserves should be one of the first orders of business for any financial makeover.
We recommend ultimately building a fund with about 12 to 18 months’ take-home income. But it’s important to understand that won’t happen overnight. In other words, you don’t need to put the rest of your financial life on hold until your emergency fund is complete. Rather, chip away at it over time.
- Pay bills right after receiving your paycheck
Taking care of monthly obligations before letting yourself indulge in any luxury expenses is a helpful budgeting strategy. It gives 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. Furthermore, paying your bill early improves your credit utilization, and thus your credit score, by reducing the balance listed on your monthly statement.
We recommend setting up two automatic monthly payments from a deposit account: one for right after payday and another for a couple days before your monthly due date. The second payment will help you avoid interest on any purchases made between your first payment and the end of your billing period. If you don’t know when your billing cycle begins and ends, simply check your monthly statement. You can also request to change it to whatever day of the month is best for you.
To learn more about keeping your payment train on schedule, check out our 8 Tips For Never Missing A Due Date.
- Make a realistic budget and stick to it
The fact that we’re on pace to end 2019 with well over $1.1 trillion in credit card debt is a bit less surprising when you consider that only about 4 in 10 adults have a budget, according to the National Foundation for Credit Counseling. Both statistics also signal the need for greater urgency on our part. In short, missed payments and credit score damage are in our future if we don’t cut back, which requires re-thinking how we allocate our money.
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 healthcare 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 monthly spending throughout the year to make sure you’re abiding by your budget.
- Use different credit cards for everyday purchases and debt
The Island Approach involves using different accounts to serve different financial needs, as if they are a chain of islands. The most basic example is using a rewards credit card for everyday purchases and a 0% APR card for balances that you’ll carry from month to month.
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.
- Look for a better job
Sometimes, we get so caught up in spending less and saving more that we forget to address the other side of the equation: how much we earn. But the benefits of finding a higher-paying job could actually end up outweighing everything else put together. Trading up career-wise isn’t necessarily as simple as scouring local job postings, though.
You might need to consider moving in search of higher wages or a lower cost of living. Or you could go back to school to gain skills that will add to your earning potential.
Not all industries and areas of the country offer the same opportunities. For example, the best city for jobseekers in 2019 – Scottsdale, AZ, according to WalletHub research – has 111% more job openings per unemployed resident than the worst city for jobseekers, Fayetteville, NC.
- Sign up for credit monitoring
Thanks to the increased availability of free credit scores, most people have a good sense of their credit standing these days. Too few of us are familiar with the actual contents of our credit reports, though. That might be because we assume our credit scores tell the full story, but that’s just not the case. For starters, as many as one in four people have an error on their report that could affect their credit score, according to research by the Federal Trade Commission. Furthermore, reviewing at least one of your major credit reports on a regular basis will allow you to spot signs of fraud before they get too serious. You can start by checking your free TransUnion credit report on WalletHub.
With that being said, no one can keep tabs on their credit around the clock. And that’s where 24/7 credit monitoring comes in. Signing up for free credit monitoring will enable you to receive an instant notification anytime there is an important change to your credit report. In other words, it reduces lg time when spotting issues and gives you the peace of mind that comes with knowing you won’t miss anything.
- Improve your credit score by 20 points
Less than 1.6% of people have the highest credit score possible (850). Fewer than 1 in 5 people have perfect credit scores (800+). And the average credit score is 683. So most people have room for credit score improvement and could save a lot of money as a result.
The best way to improve your credit is to maintain an open credit card account that is in good standing. The card will then report positive information to the major credit bureaus each month, either building out a short credit history or helping to devalue mistakes from the past. You don’t have to get into debt to benefit from the credit building capabilities of a credit card, unlike with a loan, and you don’t even need to make purchases with your card. If you don’t have the credit standing necessary to qualify for a normal credit card, you can always place a refundable deposit on a secured credit card and benefit from what’s basically guaranteed approval.
You can get your free credit score, updated daily, by signing up for WalletHub. This will give you an accurate sense of your starting point and enable you to track your progress over time. Plus, you will receive customized credit-improvement advice that will help you maximize both your score and your savings. For example, the grades on the Credit Analysis section of your WalletHub account will tell you what weak points you need to work on.
- Focus on Your Physical Health
There is a clear connection between physical, emotional and financial health. For starters, the average person spends about $4,968 on health care each year. Money is also our biggest sources of stress, according to the American Psychological Association. And people who get regular exercise tend to have better credit scores.
This underscores the importance of getting your financial house in order as well as exercising regularly and engaging in other healthy practices aimed at reducing health care costs. It won’t be easy, but this is one resolution that will certainly pay dividends in multiple areas of your life.
“If you begin to make small healthy changes to your diet, increase exercise in small increments, and practice yoga and meditation, you will feel better,” says Deborah Bauer, a distinguished senior instructor of finance at the University of Oregon. “Feeling better will lead to wiser financial decisions that focus on the long term.”
- Get an A in Wallet Literacy
Financial literacy levels in this country are far too low, and they’re headed in the wrong direction. As of 2019, roughly 45% of Americans grade their financial know-how at a “C” or below, according to the National Foundation for Credit Counseling. In 2013, that figure was at 40%.
So start 2020 by taking our Wallet Literacy Quiz and getting a baseline score. Then, throughout the year, study the areas where you struggled and periodically re-test yourself to gauge your progress. Your goal should be to get at least an A- by the time 2021 rolls around.
The article above was released by WalletHub.