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Start 2023 with these smart financial habits
There’s no better time to start making a few life improvements than January of a new year. And, according to a recent survey on the top New Year’s resolutions in America, finances are on over half of people’s minds. In fact, 39% of people made a resolution to save more money in 2023, while another 19% plan to cut back on spending altogether.
Whether it’s a new goal or something you’ve been working on, building some smart financial habits can go a long way toward improving your financial health. For many people, that means implementing better budgeting habits or limiting spending. For others, it means creating (or adding to) an emergency savings fund and achieving some long-term financial goals.
Whatever the case, here are the best ways to start 2023 off right and prepare financially for the year ahead.
1. Build smart budgeting habits
Inflation has dropped to 6.5%, according to the Consumer Price Index. This doesn’t necessarily mean things are getting cheaper (though the cost of some things has fallen). What it does mean is that prices are starting to level off rather than continue to skyrocket.
This is good news for anyone who’s been feeling the effects of inflation these past few months or so. Still, it might not help as much if you’re living month-to-month or falling behind on bills.
What can help is making a personal budget.
Making a budget doesn’t need to be complicated. Even if you’ve never done it before, there’s an easy way to go about it. Just follow these simple steps:
- Calculate your total income. Include money from your regular job and any side gigs. Also include alimony, child support, government assistance, and other benefits you’re getting. To keep things simple, you can use an Excel or Google Spreadsheet to keep track of everything. If your income fluctuates, make an estimate of how much you take home each month.
- Calculate your total bills or expenses. Next, figure out where your money goes each month. Start with fixed expenses like utilities, rent, and car payments. These are regular bills that don’t fluctuate much. Then, calculate your variable expenses (things that change monthly or weekly). This could include things like groceries, entertainment, and gas.
- Look over your previous income and spending. If you’re not sure how much you’re taking home or how much you’re spending, review your bank statements for the past few months. This can help you get a baseline of your finances over time.
- Cut back on excessive spending. You might be surprised to find that you’re spending more than you think. Look for areas where you can reduce your spending, like dining out or entertainment.
- Set some goals. These could be short-term goals like paying more toward your minimums on your credit cards. Or they could be long-term goals like saving up for a down payment on a house or car. Having a few realistic goals to get you started can help motivate you throughout the year.
- Stick to the budget. Put your budget into practice. Try to stick to the amounts you’ve written down. If you want to cut back on an area, do so whenever possible. But be realistic. If you try to go to extremes, you might end up failing in your budgeting goals.
- Make changes as needed. Things come up. Your income might increase or decrease. Your rent or grocery bill could go up. Make adjustments every so often, such as when something major happens.
- Review your budget. You should also review your budget every few months. If you’re not sure when’s the best time to do this, start with January, April, August, and December.
You might not see massive changes right away, but that’s okay. Building better money and budgeting habits takes time, after all.
READ MORE: How to start saving from scratch
2. Start paying down debt
Millions of Americans have some kind of debt. The average person owes around $96,371 in consumer debts like mortgage loans, auto loans, student loans, and personal loans, and credit cards.
If you have a lot of debt, it can feel like you’ll never be able to pay it all off. But that doesn’t have to be the case.
There are quite a few methods you can use to become debt-free. For example:
- Debt avalanche method: With this method, you prioritize paying off the debt with the highest interest rate first, regardless of balance. You then pay off the next highest debt and so on.
- Debt snowball method: This method has you pay off the debt with the smallest balance (regardless of interest) first. Once that’s done, you then move on to the next highest balance and so on. With this and the debt avalanche method, you should still be paying your minimums on your other debts.
- Debt consolidation: If you have unsecured debts like installment loans or credit cards, debt consolidation could help. This method combines multiple debts into one loan with a simple monthly payment. If you have good credit, you could also end up paying less in interest.
- Paying more than the minimums: Your monthly payments on most debts include the current balance and any interest charges. If you can, try to pay more than the minimum amount due to save on interest and pay off the debt sooner. Make sure your account doesn’t have an early payoff fee (called a prepayment penalty) first.
READ MORE: How debt consolidation works
3. Implement cost-saving strategies
Love shopping but need to cut back on spending? Here are a few things you can do:
- Take advantage of discounts at stores you already shop at.
- Start couponing or combining coupons (online, in-app, etc.) to save more money.
- Use cashback or cash rewards apps like Ibotta or Rakuten to save more on groceries and similar items.
- Always shop with a list to avoid buying what you don’t need.
- Leave the extra credit cards at home or bring cash to keep spending under control.
4. Limit impulse spending
Spending alone isn’t a problem. After all, some things are essential to your life or can give you a morale boost.
Impulse spending, on the other hand, can become rather expensive and end up hurting your bank account. According to the CNBC, Americans spend a little over $300 a month on impulse purchases.
While it might not be possible to stop impulse buys altogether, there are a few ways you can cut back — and help your finances in the long run.
- Make and stick to a budget
- Put a limit on how much you can withdraw from your account each day or week
- Avoid shopping when you’re emotional or hungry
- Bring cash and a list whenever you go shopping
- Shop with a friend who can help keep you on track
If you do want to buy something for fun, that’s okay, too. Just make sure you budget for it. Some things, like a new computer or guitar, might require you to save up some money over time. Refer to your budget and see if (and when) you have money left over.
5. Consider credit counseling
Many Americans live paycheck to paycheck. Not only can this make it hard to save up money or pay off debt, but it can also be frustrating. Having a budget can help with this, but we all need some extra support sometimes.
If you’re struggling financially or can’t stick to a budget, consider credit counseling. A qualified credit counselor can help you make a budget, manage your debt, and even rebuild your credit score. They can also help keep you accountable when you need it most.
6. Take on a side gig
Around 70.4 million Americans have a side gig or consider themselves to be freelancers. If you need some extra cash, consider a side hustle. Not only can this help with your day-to-day expenses, but it could also be a good way to start paying down debt.
Say, for example, you get a side gig as a rideshare driver and make an extra $300 a month. If you start now and do it throughout the year, you could have an extra $3,600. This could help you pay off that credit card debt that’s been following you around. Or it could give you some wriggle room in your budget.
READ MORE: How to eliminate expenses and boost savings
7. Create an emergency fund
Many people in the financial space suggest saving up 3 to 6 months’ worth of expenses in an emergency fund. But doing this can take some time. It can also be overwhelming, especially if you don’t currently have a savings account or emergency fund. According to a recent survey, 27% of Americans don’t have an emergency fund.
So, start slow. See if you can set aside $50 or $100 a month in an account you don’t have regular access to. With $50 a month for 12 months, you’d have an extra $600 — enough to cover an unexpected expense or two. With $100 a month for 12 months, you’d have $1,200.
Vacationing in 2023: Rentals and other fees
January 31st is National Plan for Vacation Day. It’s a day when many Americans start planning their vacation days for the upcoming year.
Taking a vacation can be a great way to unwind, destress, explore, and spend quality time with loved ones. But it can also be expensive if you’re not careful.
According to a new Debthammer survey of 1,500 Americans, here’s what people typically experience when it comes to their vacation rental experiences:
- More than a 75% of Americans have used a short-term vacation rental service
- Nearly half of Americans were uncomfortable, felt unsafe, or were disappointed by their vacation rental
- Around 66% of respondents had to complete chores when checking out from a vacation rental on AirBNB or similar sites
- Approximately half of the people surveyed weren’t clear on the price until they nearly completed their booking
Looking Ahead at 2023: Personal Finance
Whether you need help getting your finances on track, or you’re trying to accomplish some financial goals, now’s the best time to get started. There are many ways to improve your financial habits and save money. As with any habit, it can take some time to get used to these changes. But if you get started now, you can set yourself up for financial success before January 2024.
And if you’re looking for some reading material to get started, check out our list of the best personal finance blogs.