The new year is officially here! This is an excellent opportunity for a fresh start when it comes to your finances. Whether you need to start saving more for the future or create better everyday money habits, these financial resolutions to set and accomplish this year are a great addition to your 2023 goals.
Step Up Your Savings
Whether it’s planning for the unexpected or a significant expense, a new year is a great time to step up your savings. Setting up an emergency fund is essential in preparing for the unexpected in 2023, whether a job loss or an accident. Setting aside anywhere from 3 to 12 months of your monthly expenses in a Savings Account can protect you from unwanted debt and your more volatile investments from being sold. Based on the difficulty it would take to replace existing income, these are the most recommended sizes of an emergency fund:
- 3 Months of Expenses– Another job with similar pay can be found quickly
- 6 Months of Expenses– Well qualified for many jobs, but finding the right one will take time
- 9 Months of Expenses– Jobs in current field and salary level are limited or competitive
- 12 Months of Expenses– Lacking the right skills for the job market or in a field where jobs at the right salary level are minimal
Don’t forget about any significant expenses that are expected in 2023! It’s common to set goals for major purchases you want to make in the new year! These can range from buying a new car, moving, and significant life celebrations to other less desirable expenses such as major tax bills. In most cases, these expenses have set deadlines, like being forced to move at a particular time in the year, a set event date, or a payment due date. Putting aside these funds early on in a Savings Account or Certificate of Deposit with a fixed maturity date can make handing over the money less stressful.
Make a Budget & Stick to It
Creating and sticking to a budget is the best thing you can do for your finances in the new year. This will provide a total view of the money brought in after taxes, spent, and owed to determine the amount you can start saving toward future goals. While this may seem daunting, the best way to get started is to track your spending on a spreadsheet or other budgeting tool for a month. This will help determine any fixed monthly expenses, which can be separated into necessities such as rent or insurance payments and discretionary spending that can be cut down. Once you determine how much spending you can cut back, set a fixed amount or percent of your income you’d like to save each month for future financial goals. The easiest way to stick to this is by automating this amount to be deposited into a Savings Account via your bank’s Mobile or Online Banking platform.
Create Better Debt Management Habits
Debt is neither good nor bad, but proper management can be a great tool to strengthen credit. For most, some debt is necessary and practical to purchase long-term assets such as a home or education, but it can be a burden when not properly used. Knowing the difference between what you can and should borrow is essential. For example, it is recommended that the monthly costs of owning a home should be below 28% of your pre-tax income, and total monthly debt payments adding in auto loans, credit cards, and others, should be below 36% of pre-tax income. In addition, consumer debt such as credit cards and auto loans can add up quickly and should be carried with care because these can add up quickly if a balance is carried. While interest rates on these types of loans can be high, this can be remedied using a Home Equity Loan or Line of Credit to conquer this debt and create a clean slate. Lastly, using Online Bill Pay is a great way to manage your payments in one place, ensuring payments are made on time to strengthen your credit score and no additional interest is charged.
Kick off the new year with plans for financial growth! Your family, your budget—and your wallet—will thank you in the long run! Contact us today to make Mechanics Cooperative Bank your trusted local banking partner in 2023.