With the new year here, now is a great time to think ahead to how you might improve your finances in 2013 and beyond. Do you hope to pay down debt or curb impulse spending? Or perhaps you want to boost your credit score?
Whatever your resolution, Ornella Grosz, personal finance expert and author of Moneylicious: A Financial Clue for Generation Y, says it’s a good idea to break it down into small, manageable steps. “You’ve got to have your check points, a time that you set to reevaluate yourself [throughout the year],” she explains. “No one can make you do it except for yourself.”
Here’s a look at five financial resolutions and the steps you might take to achieve them.
Boost your credit score. A solid credit scores makes you more desirable to lenders and even potential employers, so improving your score could mean paying less for an auto loan, mortgage, or insurance premiums in the future. Grosz’s advice? “Pay your bills on time,” she says. “That makes up the majority of your credit score. It’s really making the payments on time and of course [reducing] the utilization on your credit cards.” The utilization ratio refers to the amount of your available credit you’re using. Generally, the less credit you’re utilizing, the less of a credit risk you appear to lenders.
Pay down debt. If you ended 2012 with debt hanging over your head, use the New Year to put those debts to rest. “Probably the best way to do that is to start prioritizing your debt from highest interest rate to lowest or paying off the smallest balance first,” says Grosz. Although paying off lower-interest debt may mean paying more interest in the long-term, the satisfaction of paying off one card or loan could help you build momentum to paying off other debts. According to Grosz, the key is “knowing which approach you want to take and sticking to it, whichever one you find will work for you.”
Buy a house. Home ownership isn’t for everyone, but many people enjoy the mortgage tax deduction and the stability of owning real estate rather than moving from apartment to apartment. If your goal for 2013 is to buy a home, then you’ll want to get your credit in order (see #1). Also find out how much mortgage you’re pre-approved for. “Keep in mind that the amount you’re pre-approved for is what the bank is willing to lend to you,” says Grosz. “It doesn’t mean you can afford the limit. Crunch the numbers and make sure you know all the hidden expenses. The bigger the house, sometimes the higher the gas bill might be.”
Earn more money. If you’ve already reduced your spending to the barebones, consider how you might boost your income, allowing you to save more for retirement or an emergency fund. Before you try to negotiate a raise, “think about the accomplishments you’ve made throughout the year in your job and the value you’ve brought to the company,” says Grosz. If you’re self-employed, take another look at your fee structure and your roster of clients to see if it’s time to increase your rates or drop troublesome clients. If you can’t negotiate a higher salary or higher fees, consider starting a side business or getting a part-time job to boost your income. “Just don’t get yourself into too much debt in order to create the side business,” cautions Grosz.
Curb impulse spending. If you tend to shop impulsively—for instance, retail therapy on your lunch break or online shopping at the end of a rough week—then those little purchases could be undermining your larger financial goals. Grosz suggests setting aside a certain amount of money per month for splurges so you won’t feel deprived. But keep that money in a separate account so once you’ve spent your splurge budget for the month, you’re done. If you tend to charge up your credit cards, try using cash instead so you’ll see the money leaving your wallet. Or if you must use a credit card, Grosz says writing all your debt on a Post-It and attaching it to your credit card can remind you to keep your spending in check and ask yourself if you really need those shiny new shoes or the latest tech toy.