The last couple of weeks before the New Year mark a time when people relax and have fun. However, this is also the time when financial worries loom over most people’s heads. A new year can be a new beginning for all areas of life and finances are no different. The following are some New Year’s resolutions that would save people a lot of money –

1. Improve Savings – Saving rates are at an all-time high in America as compared to the past couple of years. The reason is that people have realized the importance of short term saving in light of long term saving. The economic situation has been sobering to the majority of the population and this has led to more money being saved in the bank. Thus, instead of going with the “save what is left after spending” approach, people need to adopt a “spend what is left after saving approach”. Depending on the condition and financial goals, saving money must come before spending money in every individual’s life.

2. Analyze Income – In order to understand finances, two important areas need to be considered – incomes and expenses. A budget cannot be created without having thorough knowledge about every income and saving earned or saved in the month. Thus, individuals need to sit down and make a budget. Most people think that they have a lot of disposable income and refrain from making a budget. By the end of the month, they find things getting rocky. To prevent this from happening, an understanding of the reason for saving money, exploring avenues and resources, and budgeting accurately is extremely important.

3. Analyze Expenses – Most people don’t know where their money went at the end of the month. To prevent this from happening, there are a lot of apps or good old pen and paper to note down the littlest of expenses. This would aid individuals in making an accurate budget. There are some expenses which cannot be controlled like – rent, telephone bills, conveyance, utility bills, internet, et al. However, some other factors like eating food in a restaurant on a regular basis, having a high speed-high cost internet plan, using cell phone when free calling apps are available, et al can be controlled.

4. Use Credit Cards Carefully – As per credit experts, Americans have changed their credit card usage and are using their credit cards more carefully. Every individual can use this statistic in their life. In the last 3 years, many individuals have paid off their credit card balances in full. The New Year’s resolution for the coming year should be about paying off one credit card in full. This doesn’t mean that the credit card with the highest interest rate should be chosen – it means that the card with the lowest balance should be paid off first.

5. Start an Emergency Fund – An emergency fund offers an individual peace of mind because it is a practical fund that can be used in the event of a medical emergency, loss of job, sudden expenses, necessary repairs and almost everything else. Another under-appreciated benefit of an emergency fund is the relaxed feeling that comes with it. An emergency fund doesn’t have to be too fancy either. It can just be in the form of a savings account. In fact, the most important factor of an emergency fund is that it should be easily accessible during an emergency situation. Withdrawal should be hassle free.

6. Living Beneath Instead Of Over One’s Means – The concept is simple – given the current economic imbalance and uncertainty, if individuals lose their job, they take an even bigger hit because they are not used to the life they are forced to live. The biggest reason is that everyone is living above what their pockets can manage. Thanks to easily available credit everywhere, this hasn’t been a problem so far but in case of a crisis, it would be. Thus, even if a Mercedes is affordable, people should look for a lower priced car that would be easier to maintain when an emergency hits.

7. Consolidating Credit Card Debt – A lot of people have difficulties paying off their credit card debt. The first step should be to pay off the card with the least amount of debt. However, it isn’t that simple for everyone. Many individuals have multiple outstanding credit cards and to deal with all this debt, they can use credit counselling. Experts can help them consolidate their credit card debt and they would be able to pay off the debt with lower interest rates. Not just that, counselling can also reveal some important flaws in their budget and spending habits.

8. Pay Back At 0% Interest Before Last Date – The credit card companies do not charge any interest if the debt is paid within a month. However, when borrowers fail to do so, the interest rates jump from a meager 0% to an astounding 15%. To avoid this hefty interest rate, attempt should always be made to repay the borrowed amount before last date. A helpful tip is to wait till the last day to make the payment. In that way, the money can earn some interest in the savings account too. It is a way of avoiding interest and also improving one’s credit score.

9. Funding 401(k) Plan – Experts advice that the 401(k) plan should be funded even before a liquid saving account is started by an individual. The plan should be one that matches the employer’s plan. In fact, it is always a great idea to max out 401(k) contributions. The benefits of doing this are long term. Retirement can be a safe, secure and peaceful time if early funding of 401(k) is done. The fund can be chosen depending on risk tolerance and investment philosophy. A fund manager’s services can also be used for ensuring proper allocation of funds.

10. Learn to Save Unexpected Income – People tend to spend all their unexpected windfall incomes on luxuries. Instead, the rule of One Third should be applied when such an income is received. This means that 1/3rd should be used for paying off past debts, 1/3rd should be put in a long term saving account and the rest should be used for any present purchases, shopping or luxuries that are needed. This rule will make saving grow and debt shrink in the life of an individual.

With proper planning and a few practical resolutions, the coming year can be smooth and fuss free. The biggest tip is to think about the future, about the necessities and requirements, set aside some money for luxuries and ensure that the financial precipice is always far away.

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