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How to Get Your Finances on Track for the New Year

Start Fresh in 2021

It is not uncommon for people to make New Year’s resolutions focused on their physical health. Yet, how often do you make resolutions about your financial health? The start of the year gives us a sense of optimism and opportunity. Now is a great time to reassess your budget and your financial goals.

If you feel overwhelmed by debts or are struggling to meet your financial goals, you are not alone. Especially during harder times like a pandemic, personal finances are something that many people have a hard time with and making a budget can be overwhelming. Even those who appear to have it all together often feel lost when it comes to saving or managing a retirement account.

Below we have provided four tips to help you re-focus your finances so that you can begin to achieve your financial goals, whatever they may be.

Tip #1: Review the Past Year

Before you can plan for the future, you have to understand where you are now and how you got there. Spending some time looking at last year’s finances can help you get a better sense of how you want to approach this year and beyond.

Identify your income sources and get a sense of how much money you brought in compared to how much money you spent out. Tally your regular and recurring expenses over the last year (rent, utilities, insurance, groceries, etc.) and note down any surprise expenses that cropped up, such as an unexpected vet bill or car repair.

Finally, take a clear account of any debt you have and whether it grew or diminished over the year. Consider where the debt is coming from, too. Did you have to put that unexpected expense on your credit card, or are you spending too much on luxuries and entertainment?

Next, ask yourself some questions about how the last year went:

  • Are you satisfied with how you managed your finances?
  • Is there anything you wish you had done differently?
  • Were you able to save any money or contribute to a retirement account?
  • Is there anything you are particularly proud of?

Try to achieve a birds-eye-view of your finances over the past year without judging yourself too harshly. Now is not the time to make yourself feel bad about things that have passed. Instead, focus on getting a clear picture of where you are today so that you are prepared to move forward positively. Don’t beat yourself up over past financial mistakes – focus on how you can work to repair them.

Once you have a clear picture of your finances, you can start building a reasonable budget that you can live with and focus on achieving your goals.

Tip #2: Get to Know Your Credit Score

Do you know your credit score? If you do, do you know what it means? Understanding your credit score can help you stay focused on your goals and give you a good benchmark for how you are doing over time. Credit scores typically fall in a range between 300 and 850. Factors that impact your credit score include the length of your credit history, how much debt you have, and whether you make payments on time. Generally speaking, a score ranging from 670-739 is considered good, 740-799 is very good, and anything above 800 is considered excellent.

Your credit score is tracked and reported by three main credit bureaus: Equifax, Experian, and TransUnion. You may be able to view and monitor your credit score for free through your bank. There are also many easy-to-use credit monitoring websites such as Credit Karma. You ultimately want to attain as high a credit score as possible. However, if your credit is not where you want it to be today, there are things you can do to improve your credit.

Ways to improve your credit score include:

  • Always pay your bills on time
  • Do your best to pay credit cards off each month if you can
  • If you cannot pay your credit cards off, do your best to avoid carrying more than a 30% balance
  • Keep accounts open even after you’ve cleared your debt to help you build a credit history
  • Utilize different types of credit

Even if you do not know your credit score, you have likely heard that building credit is a good thing. Building credit is often done through opening credit card accounts or taking out different types of loans. However, this can be dangerous for some people. Only open credit accounts that you need and which you can reasonably manage without going into insurmountable debt.

If you are a renter, you also have the option to report your rent to the credit bureaus. This is a great option for people looking to boost their credit score and who always pay their rent on time.

Tip #3: Set Realistic, Achievable Goals

When considering your financial goals for the coming year and beyond, you want to remember to stay realistic. Setting goals that are unrealistic, too big, or those that will take you too long to achieve can lead to frustration and a loss of momentum. Instead, focus on short-term goals that can be easily accomplished and as well as develop some long-term goals. It is also a good idea to only focus on one or two main goals at a time. Trying to do everything at once can be overwhelming.

For example, many people resolve to pay down their debt. Suppose you want to contribute $10,000 to your debt this year. That is a big, overwhelming number. Before setting this goal, look at your income and expenses, and figure out if this is a reasonable, doable number for you. If it is, break this goal down into a monthly or bi-weekly payment plan. If it’s not, consider how much you can reliably contribute to your debt each month and focus on that. By doing this, you can set yourself up for success.

Tip #4: Make Your Financial Education a Priority

It used to be that talking about finances and money was a taboo topic. This is unfortunate as it has led many people to struggle with their finances. However, talking about money and finances is no longer discouraged. With the rise of the internet, there is a wealth of information online, and the main credit bureaus themselves provide helpful financial information on their websites. Additionally, countless websites, blogs, and social media accounts are dedicated to improving financial literacy and financial independence. Many of these resources are available free of charge.

This year, one of the best things you can do for yourself is to learn more about managing your money. And do not be afraid to ask for help if you need it. If you are struggling with debt and don’t know what to do, reach out to a reputable credit counselor. You do not have to do this on your own. Depending on your situation, filing for bankruptcy might also be a good option for you. However, if you plan to file for bankruptcy, you should speak with an experienced attorney first. Call our office at 843-839-9995 to set up your free consultation with Attorney Lam.

To learn more about dealing with debt, review the Federal Trade Commission’s site here. The FTC provides consumers with a lot of helpful information, including how to avoid scams.