The new year is a good time to assess your finances and resolve to do better.
While some things — such as fluctuating interest rates and the volatile stock market — are out of your control, you can adjust to changes in the economy and your personal life during the last (and next) 12 months. Here are seven financial resolutions that can make a big difference for you and your family:
1. Pay down credit card debt
“If there ever was a year to make paying down your credit card bills a New Year's resolution, this is it,” said Bruce McClary, vice president for communications at the National Foundation for Credit Counseling (NFCC). “Credit card interest rates are at record-high levels right now, and there's a sense that a recession is on the horizon, so you don’t want to be carrying high interest credit card debt into what could turn out to be a recession year.”
The national average for credit card interest is currently 17.59 percent, according to Bankrate.com, and financial experts expect rates to continue going up in 2019.
To make a dent in that costly balance, you’ll need to make more than the minimum payments. Paying the minimum either “keeps you running in place or sends you backwards,” McClary told NBC News BETTER. If you’re still using the card to make charges and only paying the minimum, that balance will grow, dragging you even deeper into debt.
2. Create a family budget
It’s hard to control your spending when you don’t have a family budget to keep track of where the money is going. Only two in five adults closely watch their spending, a figured that hasn’t changed since 2007, NFCC surveys show.
“Those who have a household budget are better prepared to overcome unexpected financial challenges while staying on track to reach savings goals,” McClary said. “Without a budget, you run the risk of taking on too much debt or damaging your credit by missing monthly credit card or loan payments.”
TIP: It's not always easy to manage a budget, especially when expenses are greater than income. To get personal and confidential guidance from a financial expert, contact a non-profit credit counseling agency near you.
3. Look for higher returns for cash investments
Rising interest rates mean higher returns for savers. But you can’t wait for these higher interest rates to land in your lap, you’ve got to find them.
“Most banks and credit unions are still pretty stingy with their payouts,” said Greg McBride, chief financial analyst at Bankrate.com. “Move your money into a top-yielding online savings account. It’s federally insured, fully liquid and it can be linked to your existing checking account for easy transfers back and forth.
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Some high-yield savings accounts currently pay as much as 2.4 percent interest, which is more than 10 times the national average.
4. Contribute more to your retirement accounts
The IRS raised the annual contribution limits on employer-sponsored retirement plans, as well as Individual Retirement Accounts (IRAs) by $500 in 2019.
The new maximum for 401(k)s and similar plans increases from $18,500 to $19,000. Employees 50 and older can make an additional $6,000 catch-up contribution.
If you can’t set aside the full amount and your employer has a matching program, at least contribute enough to get that match — it’s free money.
The IRA contribution limit increases from $5,500 to $6,000 — the first increase since 2003. Those 50 and older can also make a $1,000 catch-up contribution.
“If you don’t have a workplace plan, but you or a spouse has earned income, you're eligible for an IRA. You can set that up with your bank, brokerage firm or a mutual fund company,” McBride said.
While boosting maximum contributions by $500 may not sound like a big deal, it is. Save that extra $500 every year for 30 years — and earn an average annual return of 5 percent — and you'll have an additional $35,000 for retirement.
5. Build an Emergency Fund
Life happens. Whether it’s a new set of tires or a furnace repair, you need to be prepared for these unexpected expenses. Four in ten Americans could not cover an emergency expense of $400, according to the Federal Reserve Board’s Economic Well-Being of U.S. Households report.
“Choosing to establish an emergency fund is one of the smartest personal finance decisions you can make,” said Matthew Frankel, a certified financial planner who writes for The Motley Fool. “Having emergency savings can prevent you from having to go into debt or tap into your retirement savings, if an unforeseen expense arises.”
Your goal: Save enough money to cover six months of living expenses. Don’t be intimidated by what may seem like an impossibly large figure — just get started. For example, if you want $1,000 in your emergency fund by the end of 2019, set up an automatic transfer of $40 from every bi-weekly paycheck to a separate savings account that’s specifically for your emergency fund.
6. Pay Your Bills On Time
Pay late and you’ll get hit with needless penalty fees. More importantly, your credit score will take a beating and that can have serious consequences. It can limit your ability to get a loan or rent an apartment, make it harder to get wireless phone service, and it could drive up the cost of insurance.
Payment history is the most important factor used to determine credit scores. A single late payment of 30 days or more can cause your score to drop by 100 points or more. And it will take years to erase the damage.
If you can’t pay off the balance in full, at least make the minimum payment that month. It’s much better than paying late. If the problem is remembering to pay, set up automatic payments or payment reminders.
7. Don’t react to current stock market volatility
Resolve not to panic and make any rash financial decisions when you receive your year-end retirement account and brokerage account statements.
“The ugly fourth quarter in the stock market isn’t fun for anyone, but volatility is normal at a time when interest rates are rising and there are concerns about a deepening trade dispute with China,” Bankrate’s McBride said. “Do not jeopardize your long-term financial security by making knee-jerk reactions to short-term market volatility.”
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