Making New Year's resolutions can be a great way to create a better life for yourself. You may want to improve your finances, health or relationships, but most New Year's resolutions don't stick. If you want your financial goals to have staying power, try adopting some better money habits.
Ready to invest in yourself and start growing richer in the New Year? These five tips can help.
1. Try a New Year's spending freeze
January can be a great time to go on a cash diet, especially if you're coming off of a holiday spending spree. The idea behind a January spending freeze is simple: only spend money on truly essential things, and avoid spending on things that aren't.
Trying a no-spend challenge in January gives you a chance to figure out which expenses really matter to you. You might surprise yourself by how much money you save and make a habit of spending less on non-essential things throughout the year.
2. Track your spending
Keeping tabs on your spending can be an essential money habit. When you know where every dollar is going, it's easier to analyze your spending habits and cut out money-wasters.
It's not necessarily the big expenses you need to watch out for, either. For example, you may be paying for a streaming or gaming service you no longer use. Eliminating the spending bloat can help you create a more streamlined budget.
3. Get on a savings schedule
One of the most powerful tools for growing wealth is compounding interest — the interest you earn on your saving's interest. One way to compound interest is to save consistently. You could also decide to stretch your money even further by investing it. Robo-advisors, for example, are a new type of digital investment management service that are revolutionizing investing by making it more accessible to new investors.
Go back to tip #2 and review your budget. Look for money you can commit to saving or investing each month. Even if it's just a small amount, a $25 or $50 investment can add up over time as the interest compounds. The key is to make saving a regular habit.
4. Make paying off debt a priority
One of the biggest barriers to growing richer is debt. Whatever debts you have — student loans, credit cards, a car loan or other debt — make a plan for paying yours down.
Two popular ways of paying off multiple debts are the debt snowball and debt avalanche methods.
- The debt snowball method means paying off your debts in order of lowest balance to highest.
- The debt avalanche method pays off debts in order of the highest interest rate to the lowest interest rate.
It's important to stick with your debt payoff plan once you've established it. Make sure you're making debt payments on time each month as late payments can damage your credit score. Just like with growing wealth through investing, consistency is crucial to paying off debt.
5. Stay accountable to your financial goals
Setting financial goals in the New Year is a step in the right direction toward managing your money more effectively. Get in the habit of scheduling regular financial reviews to hold yourself accountable.
Once in a while, sit down and go over your budget and spending, review your savings and investments, and see how much progress you've made toward your goals. Then make any adjustments to your financial plan necessary to keep you on track.
If you want to grow richer in the New Year, starting with these five tips can help you create the right financial habits.