• Dec 21st, 2021
5 New Year’s (financial) resolutions to kick 2022 off right
New Year, New Me, goes the old saying. But as you ring in the new year with grand plans to exercise more, or spend less time on your phone, you should also be thinking about ways to improve your personal finances.
It's not quite as sexy as dropping a few kilograms to fit into your old skinny jeans, but it is a lot more rewarding. But before you even start planning for the new year, you should take stock of how your finances fared in 2021.
Did you have a budget? Did you stick to it? Did you set a savings goal? Did you meet it? Did you pay down any debt - or did you end up in more? These are all questions you should ask yourself, and write down the answers to. These will help you tailor your goals so that they're realistic - and achievable.
Now, let's take a look at some financial resolutions to kick the new year off the right way.
Set a savings goal
Having a savings goal is always a great idea, but it's particularly important to set one at the beginning of the year, so you have enough time to hit it.
But setting a savings goal isn't just about picking an arbitrary number and hoping you meet it. Your savings goal should always be tied to something. For example, are you saving for a house deposit? A vacation? Your retirement? Once you know what you're actually saving for, you're more motivated to achieve a savings goal.
But the key is to make sure it's realistic. If you earn $60,000 a year, you're unlikely to be able to put $30,000 away, and pay rent, bills, buy groceries and have a social life.
Generally, experts say to save 20% of your paycheck. So, figure out what 20% of your paycheck is. Then, multiply that figure by the number of paychecks you receive, and make that your minimum savings goal.
You can always add to your savings, but you don't want to be making regular withdrawals as this could mess with bonus or promotional interest rates.
Build an emergency fund
Life is unpredictable, so to ensure you're financially capable of handling unexpected bills (like car insurance excess if you get into an accident, medical bills or pet emergencies) you should always have an emergency fund.
It's best to aim to have three months' worth of expenses saved up in your emergency fund. And when we say expenses - we mean just that. Your emergency fund isn't to cover social events and entertainment, it really is there just to get you by in times of financial distress.
Even if you can only save an extra $20 a week - that works out to $1,040 a year. This can give you some financial breathing space should something happen, so you don't need to rely on payday loans or borrowed money from friends and family.
Write a monthly budget - and stick to it
This sounds tedious, but writing a budget is really just about planning how you're going to spend your money in 2022.
The 50/30/20 rule is a simple budget method to help you get started. This rule states that 50% of your after-tax pay is for 'needs', 30% is for 'wants' and 20% is savings.
'Needs' are things like:
- Rent or mortgage payments
- Debt repayments
'Wants' are things like:
- Eating out
- Haircuts and mani/pedis
- Subscriptions to Netflix, Spotify, Stan etc.
Your savings are just that - savings.
Figure out what your after-tax income is and divide it into these categories. You can set up separate (labelled) bank accounts in your banking app to help you. Try this budget for a month and see how you go. If it's not working for you, find the issue and tweak your budget accordingly.
Perhaps you need to add more money into the 'needs' categories, and therefore need to move some out of the 'wants' category. Perhaps it's vice-versa. Bending your budget to fit your lifestyle just means you're being realistic. The goal, however, is to keep that 20% as it is to build up your savings.
Pay down your debts
Again, paying down your debts should be an all-the-time goal, but making it a New Year's financial resolution can give you enough time to plan out a strategy to do it.
The first thing to do is to figure out exactly what you owe. That means taking stock of all your credit cards, fines, unpaid bills and loan repayments, and any other debts you may owe.
Add these up and look at your total. It can be daunting, but this is a really crucial step in your financial journey, because it means you're finally taking control!
Once you know what debt you owe, and how much you owe in total, you should prioritize your debts. What's due when? How much is due? Can you afford to make that payment by the due date?
If not, you may need to ring your provider or lender and request financial hardship. They may be able to put you on a payment plan.
If you have multiple loans or debts with different rates and fees, you may want to look into debt consolidation. This way, you combine all your debts into one and make repayments towards a single debt.
Stay on top of your credit score
Your credit score plays a key role in how banks view you as a borrower, and it can be the key to securing a personal loan at a good rate. And while staying on top of your credit score is important at all times, it's particularly important if you need access to finance this year for a house, car, home renovation, vacation or anything else.
First things first: check your credit score. You can check your credit score for free here at SocietyOne. We can provide you with powerful insights on what's impacting your score, as well as potential inaccuracies, like:
- Duplicate debt payments
- Repayments you made that weren't recorded
- Loans you never applied for.
If you see something that isn't right, you can act fast by contacting your lender or credit provider to sort it out. If you think there's something else at play, like identity theft, you may need to contact the Australian Financial Complaints Authority to make a complaint, and get free, independent dispute resolution.
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