This time of year, a lot of people are making New Year’s resolutions to get in shape, spend more time with their kids, travel or go back to school. These resolutions are great for improving physical, emotional or spiritual wellbeing. But there’s one aspect of life that many people forget about when it comes to self improvement–their financial wellbeing.

Why is financial wellbeing important?

We know that money isn’t everything, and while it may not buy happiness, it can provide options. Without financial stability, good credit and a savings plan, it can be much more difficult to accomplish important goals in life such as buying a home, going to college, seeing the world or even raising a family.

In this post, we will offer some tips for getting in financial shape for the new year so that, hopefully, you’ll be able to accomplish even more of your goals for 2018!

Improving Your Credit Score

Credit scores are important because they are used to determine your creditworthiness when it comes to getting a loan. Whether you’re financing a car, applying for a mortgage, or buying a set of new furniture, major purchases are often secured through a loan from a bank, credit union or mortgage company. Generally, the lower your credit score, the higher the interest rate you’ll pay on these loans. In other words, people with the best credit scores usually pay less overall when borrowing money.

Having a good credit score can also help you qualify for special types of financing or money-saving benefits that may not be available to people with low scores. For example, the Federal Housing Administration (FHA) will insure mortgages that offer an attractively low 3.5% down payment minimum to borrowers with FICO scores of at least 580. Borrowers with scores below 580 may still be able to get an FHA loan (depending on the lender), but they will have to pay at least 10% down.

Here are a few practical tips to improving your credit score:

  • If you haven’t established credit yet, do a little research on the best way to get started. Know the difference between “good debt” and “bad debt.”
  • Work on paying off your most expensive debts first. For example, let’s say you have a credit card with an interest rate of 23.5% and another with a rate of 26.5%, focus on paying off the second one first while maintaining on-time, minimum payments on the other (or more than the minimum payments if possible).
  • Always try to pay every bill on time. If possible, set up auto-pay through your bank account or credit card so you don’t forget. Late bill payments can affect your credit score.
  • Once you’ve paid off credit cards, keep them open if possible. This keeps your available credit higher and the percentage of your used credit lower. Cancelling your credit card altogether can actually reduce your credit score because you are reducing your amount of available credit.

Cut Out Wasteful Spending

If you’re serious about improving your finances in the new year, trimming out wasteful spending is a must. To do this effectively without putting yourself in hardship, start by adding up your monthly expenses. Start with your largest, recurring bills that generally stay the same month after month. This could be things like rent, student loan payments, utility bills, grocery bills, etc. Then go through your bank or credit card statements and see where else your money is going every month. Are you seeing a lot of fast food charges? Even though it only seems like a little here and there, it can add up to more than you realize. If you spend an average of $7 per fast food order, and you eat fast food twice a week, that’s $56 per month!

Once you see where your money is going, you can designate specific costs to cut out. Using the fast food example, now that you know your eating habits are costing an additional $56/month, you can make it a point to cook at home and pack leftovers for lunch more often.

There are also ways to reduce spending on utilities, entertainment and communication services. Are you paying a lot of money for premium cable channels that you don’t watch? Are you paying for a cellular data plan that offers more than you need? Take a look at what you are paying for and compare it to what you are actually using.

Start (and Keep) a Savings Plan

Preparing for the future is a big part of financial wellbeing. Not only does this allow you to pay for large purchases you’re planning for, such as a down payment on a home, it also provides a financial safety net when unexpected expenses come up. But for many Americans, saving money is difficult, especially when you’re already living paycheck to paycheck.

If you are in a position where you feel like you can’t afford to put money in savings, refer back to number 2. If you can reduce your spending, it may be easier to put a little money aside for a rainy day. Even if it’s just $50/month, after six months you’ll have $300 — which could come in handy when your car needs new tires or when you accidentally wash your cell phone with your laundry. If just $50/month is impossible for you to save without going without basic necessities, you may need to shift your focus on finding ways to increase your income. This might mean having to get a second job or asking for more hours or a raise at your current job. Are you the crafty, artistic type? Maybe you could kick your creativity into high gear in the new year and start selling your creations on Etsy or eBay. If these options aren’t possible, you may need to consider looking into financial assistance through your local or state government.

Whatever you decide to do for your savings plan, the important thing is to be consistent. Again, even a small amount can make a big difference if it is saved consistently. If your employer offers any kind of savings or retirement plan, take advantage of it because these plans generally grow a lot faster over time than just a basic savings account. Also, most of the time these retirement plans deduct the money from your gross earnings (before taxes), so your tax withholdings on each paycheck may be lower. Check with your employer for details.

If your employer doesn’t offer a plan like this, you can set one up yourself. Take some time to do a little research on retirement accounts and ask around for recommendations on banks or companies. An individual retirement accounts (IRA) may be a good option to start out with and your own bank or credit union may offer these.

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