Financial Resolutions for 2013
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UPDATED: Jan 4, 2013
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This year, anything is possible. 2013 holds with it possibilities of becoming a healthier and more financially savvy person.
According to a survey commissioned by TransUnion, more than half of Americans have a 2013 resolution to save more money.
This common New Year’s resolution can be accomplished in several ways, such as by reducing debt, saving for emergencies, and moving funds to higher interest accounts.
Big financial changes can happen in a year’s time; all that is needed is the first step.
One of the biggest goals for a financial New Year’s resolution is paying off outstanding debt. According to the TransUnion survey, 42.3 percent of survey respondents want to pay down existing debts.
While some debt is good to have, reducing or eliminating large debts such as personal loans and auto loans can positively impact a person’s financial history. Outstanding personal loan debts inhibit future lending capabilities and could cause a spike in interest rates for future borrowing.
Interest rates across the board are near historic lows. Lower rates can positively impact those looking to reduce their personal loan debt in a shorter time period. In order to reduce repayment times, consumers can increase their monthly payment amounts. Paying more than the minimum payment will cover more of the principal, and not just the monthly interest payment. In the long term, this will reduce the overall amount that a borrower repays on a personal loan.
Until outstanding debts are paid off, it is best to avoid taking out new personal loans and payday loans.
Reducing outstanding debt will also have a positive impact on one’s credit score. The Consumer Financial Protection Bureau (CFPB) reports that only 1 in 5 consumers request their free annual credit report, even though it greatly affects a consumer’s personal and financial life. Reducing debt and improving one’s credit score can be an easy and impactful way to increase one’s financial security.
Save for Emergencies
As a consumer, one hopes to never encounter a financial emergency, but it is illogical to not prepare for one. Financial emergencies can occur in the form of unemployment, automobile accidents, unforeseen medical problems, or increases in premiums, among others.
Financial advisors suggest having an emergency savings fund to cover between three to six months worth of living expenses, just in case a worker loses his or her job. The fund should cover all costs of living for that period of unemployment. Without this emergency fund, many newly laid off people find themselves turning to high interest credit cards and personal loans to fund essential expenses such as rent and food. But these costs spiral out of control without a way to repay them.
Each person’s budget is different, but it is important to set aside money from every paycheck for an emergency fund. Whether it is $50 or $500, every amount will help in the case of an emergency.
Stick to a Budget
Something as simple as setting a budget can have a major impact on all financial decisions. Failure to abide by one’s budget can cause a consumer to lean on credit card purchases, personal loans, and payday advances. But most can avoid these financial mediums with proper planning.
Keeping track of one’s finances begins with understanding what budget a person or family has. It all comes down to luxury and necessity items. It is important to know the unavoidable monthly costs of living, which usually includes rent, utilities, and food. Many people have multiple luxuries that they think are necessities, such as lunches out at work and gym memberships. Although these things become part of one’s routine, they are not a necessity. Begin assessing one’s monthly budget with the essential items and decide from there what you can afford as a luxury, such as cable TV and Wi-Fi.
If you are part of a family, keeping open communication about your family’s budget is essential. Every expense, however small or large, significant or insignificant, should be discussed. Small expenses such as a morning cup of coffee can add up to large amounts throughout the month.
Seek Higher Interest Savings
Savings accounts are great to have but many Americans are missing out on opportunities to earn more money. Due to low interest rates across the board for auto loans, personal loans and mortgages, bank account interest rates have also dropped. Some accounts are offering meager .01 percent interest rates. While savings accounts help facilitate consumers to save money, they do not build one’s wealth quickly.
For the upcoming year, consumers with extra money in savings accounts should look into low-risk savings options such as certificate of deposits (CD’s). Although CD’s do not have the potential to increase at rates similar to stocks, they do provide a more secure way to increase interest payouts.
For example, a U.S. Bank savings account provides a .01 percent interest on savings accounts and offers CD’s ranging from .05 to 1.25 percent. Bank of America’s savings accounts provide a .01 percent interest on savings accounts and offers CD’s ranging up to .30 percent.
One downside of CD’s is their long-term savings nature. They are incremented by time, so a lower interest CD, such as one with .05 percent, will be for a one-month account, whereas a higher interest rate such as U.S. Bank’s 1.25 percent is for a 59-month period.
Start a Retirement Plan
Saving for retirement is more important than ever. According to a survey by the Employee Benefit Research Institute (EBRI), only 14 percent of working adults feel very confident that their retirement years will be lived comfortably. Thirty-eight percent of respondents are somewhat confident, and 23 percent are not confident at all.
While it is never too early to begin saving for retirement, some consumers wait until it is too late to prepare a solid plan. The same EBRI survey found that the percentage of working adults saving money for retirement fell from 75 percent in 2009 to 66 percent in 2012. Retirements can span decades, and without proper planning, most retirees will not have sufficient funding for this period of time. Unfortunately, that causes some to turn to family members or personal loans to fund their lives. These personal loans and high interest payments can create a larger problem for retirees in the years to come.
Consumers should look into any workplace retirement programs or begin a plan themselves. Similar to an emergency fund, even if the monthly addition is small, it can have a large impact on the total retirement fund in years to come.
Just as any new health resolution is difficult to uphold, any drastic financial changes will pose complications for consumers. But in the end, the opportunities for financial progress far outweigh the minor changes needed for financial success.