In this post, we will cover simple and effective money resolutions that are easy to keep, but first, here is our disclosure:
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Making Smart Money Resolutions
As we begin a new year, it’s an excellent opportunity to set financial goals and take steps toward achieving them. Making money resolutions can help you take control of your finances and create a better financial future. However, it is much easier to make resolutions than stick to them.
According to a Forbes Health/One Poll Survey, the average resolution lasts less than four months, with only 1% making it the entire year. I think people often fail to achieve their New Year’s resolutions because they either set unrealistic goals or don’t have a clear plan to accomplish them. Worse yet, people tend to make their resolutions all or nothing.
Let’s say you eat out every weekend but then decide to take on the “no eating out challenge” for a month to save money. What happens next? It will most likely be challenging to make it through the entire month. You will find yourself counting down each passing day until the month ends. And once it’s over, chances are you will return to eating out every weekend without having made any lasting changes.
Money Resolutions That Last
The key is to use your money resolutions to develop good money habits that last.
This list of money resolutions aims to provide simple and achievable goals that can help you develop positive long-term money habits. They are meant to help motivate you to make small positive changes today that will have a lasting impact for years.
These money resolutions are simple and require little effort. Many are set it and forget it, allowing you to accomplish them with ease.
You can make one, some, or all of the following money resolutions. Better still, you can begin these anytime, not just at the start of the New Year. No matter your choice, your money will thank you.
So, without further delay, here are seven simple money resolutions that you will be able to keep.
1. Increase Retirement Savings By 1%
If I only did one money resolution each year, this would be it. Increasing your retirement savings by 1% is the most straightforward and effective money resolution. Once you set it, you will never have to think about it again until the following year. It could not be any easier.
The best part is you won’t feel the difference in your wallet today, but your future self will thank you thanks to the power of compounding.
Let’s illustrate how simple but powerful this money resolution is with the following example:
Imagine you earn $60,000 per year and contribute 10% (or $6,000/year) of your earnings to a 401K, increasing your contribution by just 1% will increase your yearly contributions by $600. Your new total contribution would be $6,600 per year. This amounts to only an additional $50 per month.
Depending on your investment strategy, that $600 has the potential to grow to $4,000 over 20 years if you earn a 10% annual return. Even if you earn a 5% yearly return, that $600 will still more than double over 20 years, but wait, it gets better!
You have an additional advantage if you are making pre-tax contributions to an employer-sponsored retirement account, like a 401K. By increasing your contributions, you’re effectively reducing your taxable income. This means the additional $600 in the example above costs you closer to $500 due to the tax savings. Then, that money grows tax-deferred until you withdraw it in retirement.
This is as close to a win-win as you can get! And it was all accomplished by doing the simple step of increasing your contributions by 1%. It takes only a few minutes to do but lasts a lifetime.
Money resolution Action Items
If you have access to an employer-sponsored retirement account, like a 401K, 403b, or TSP, log into your account and increase your contribution by 1%. It is that easy.
I did this at the start of the year, and it took me less than 10 minutes to log in, increase my contributions by 1%, and confirm it. It was as painless and easy as it gets.
What if you do not have access to an employer-sponsored retirement account? No problem!
If you have a Traditional or Roth IRA and are not contributing to the max, increase those contributions by 1%.
What happens if you do not have a Traditional or Roth IRA? Well, that leads us to the following money resolution.
2. Open a Traditional or Roth IRA
A Traditional or Roth IRA combined with a 401K or any other retirement plan packs a powerful one-two punch. Opening one is simple and can be done online in minutes! It is one of the easiest and most effective money resolutions.
I consider opening an IRA one of the best and simplest investment decisions I have ever made. You cannot go wrong opening one if you do so through a low-cost brokerage company.
With an IRA, you can access many more investment options outside your 401K. I love that It is your personal retirement account, not beholden to any employer.
Traditional vs. Roth IRA
It’s important to remember that having a Traditional or Roth IRA has both advantages and disadvantages. To make the best decision for your situation, you’ll need to consider the specifics of each option carefully. The main differences between the two types of IRAs are related to how they are taxed, minimum distributions, and income limitations.
Contributions to a Roth IRA grow tax-free, and withdrawals are tax-free based on time limits and age. Additionally, there are no minimum distribution requirements. However, there are income limitations. You will not be eligible to contribute to a Roth IRA if you exceed them.
With a Traditional IRA, your growth is tax-deferred, but you will owe taxes when you withdraw money in retirement. You also must take minimum distributions once you reach a certain age. However, there are no income limitations, and you can deduct your contributions to a Traditional IRA on your taxes if you fall below certain income thresholds.
You can split contributions across a Traditional and a Roth IRA, provided that your total contributions do not exceed the allowable limit in a calendar year and you meet the income threshold for a Roth IRA.
Investopedia gives a good overview of the differences between a Traditional vs. Roth IRA.
Money resolution Action Items
Once you decide on which IRA is right for you, it is time to open an account. The key is to choose a low-cost brokerage company like Fidelity, Vanguard, Charles Schwab, or someone comparable. The last thing you want to do is pick a company or bank that charges you ridiculous fees and expenses for the account and your investments.
I love Fidelity. You will be charged nothing to open an IRA and to maintain it. They offer a massive lineup of index funds and ETFs with $0 transaction costs, no minimums, and rock-bottom expense ratios. There are also no transaction fees when buying individual stocks, and they have a complete line of index funds with a zero expense ratio.
Once you have chosen a company to invest with, opening an account online should only take a few minutes. You can then deposit a small amount of money into the account and keep it as a placeholder or set up automatic, regularly occurring investments.
The best part is that if you choose a low-cost brokerage company with no minimums, you can invest a small amount of money each month without breaking the bank.
The result is a resolution that only takes minutes to complete but will pay you back for years.
3. Save 1 Hour Of Pay Each Week
Rather than focus on retirement, this money resolution focuses on your liquid savings, such as money in a savings account. It is aimed at those people who struggle to save money.
This money resolution is simple: save one hour of pay per week.
In other words, if you work 40 hours a week, you only need to commit to saving 1 hour for every 40 hours worked.
How easy is that?
Saving one hour of your pay each week might seem small, but it packs a powerful punch.
For instance, if you make $20/hour, you save $20/week. That adds up to over $1,000 a year in savings. In this example, you will save an additional $1,000/year for every additional hour of pay you can save!
Why start small?
Starting small is all about exercising the savings muscle and creating positive money habits. Creating positive money habits is the key to lasting changes. Once you build the savings habit, you can go on to save even more money and be on your way to financial freedom!
Money resolution Action Items
There are two essential action items to take to accomplish this money resolution.
The first step is to direct your savings to a separate account. This will prevent the funds from getting mixed up with your other money and being spent. You can designate an existing emergency fund or open a new account solely for these savings.
The second step is to automate the transfer of these savings to the account you have designated for them. This is key to making things automatic and keeping you on track to accomplish this money resolution.
4. Cancel One Subscription
This money resolution might be the easiest by far to keep. What makes it so easy is that we all have subscriptions we are paying for but hardly ever use.
Let’s face it: subscription services are easy to sign up for and even easier to forget. According to a survey by C+R Research, on average, we are paying over $200/month on subscriptions. How is that possible?
It’s simple. Since subscriptions are easy to sign up for, we sign up for far too many that we do not need and then lose track of them. Companies entice us with free trials that require us to provide our credit card information. But once the trial period ends, we keep paying for a service we don’t use.
Money resolution action items
Review your credit or debit card transactions and create a list of your subscriptions. Then, pick one and cancel it. That’s it. The best part is you can do it all online.
Then, the money you save can be redirected towards building an emergency fund, paying off debts, or saving for retirement. Although the savings from canceling a single subscription may seem insignificant, the power of compounding has a way of working magic over time.
WARNING: You need to be aware of two things before you cancel your subscription.
First, the company you are canceling the subscription with may try to entice you to stay with a special offer. Don’t succumb to the pressure. Remember, it was probably a special offer that got you to sign up in the first place. So, ignore any offers and cancel the subscription.
Second, once you cancel your subscription, avoid signing up for another one during the year. Otherwise, you will defeat the purpose of this money resolution.
For more tips on how to reduce subscriptions, check out the post, SUBSCRIPTIONS DRAINING YOUR MONEY? DO THESE 5 THINGS NOW.
5. Pay Off Your Smallest Debt
Financial experts may disapprove of my suggestion to pay off the smallest debt first. They would say to start with debt that has the highest interest rate. But remember, this list of money resolutions aims to provide simple and achievable goals to help you develop positive long-term money habits. They are not meant to be a comprehensive financial and debt reduction plan.
So, along those lines, this money resolution is all about the quick win and providing motivation to pay off the rest of your debts. It does not matter if it is a credit card balance, payday loan, or the balance on your car loan. Pick one of your small balance debts and get rid of it.
What if you want to only focus on high-interest debt, like credit card debt?
If you prefer to put extra toward your high-interest debt, go for it. There is nothing wrong with that. Just pick a dollar value of how much extra you want to put toward the debt for the year and stick to it. That will be the hardest part.
Money resolution action items
For this money resolution, we are focusing on any debt you may have that is below $1,000.
Why $1,000?
As we saw earlier, it only takes $20 per week to save over $1,000/year. The same applies to your debt. All it takes is $20/week to pay an extra $1,000 in debt each year.
What if $1,000 is too much for you?
If $1,000 is too much, strive to pay off $500 in debt. Less than $10/week will pay off over $500/year.
What happens if you do not have any small balance debts?
If you do not have any debts under $1,000, pick any of your debts, except your mortgage, and put that money toward it. You can choose to put an extra $500 or $1,000. Do the same if you prefer to focus on paying your debt with the highest interest rate first, regardless of its balance.
6. Review Your Spending
Notice I did not say “make a budget,” but rather “review your spending.” There is no doubt that starting and adhering to a budget is a great way to take control of your finances. However, making a budget can be tedious and difficult to stick with, so I excluded it from this list of simple money resolutions.
The simple step of reviewing your spending packs a powerful punch, even if it is not a budget. It is easy to do and requires little effort but will deliver results that far exceed your expectations.
There is nothing quite like reviewing your expenses to wake you up from the fog of spending. It is eye-opening, with the only downside being that it might push you to make changes.
You might be surprised to see where your money is going and the charges you didn’t know about. If you are lucky enough, you will find a subscription service to cancel, allowing you to accomplish two resolutions in short order!
Still not convinced how powerful this money resolution can be?
Trust me, once you see your spending, you cannot unsee it. You will never look at your spending the same way again. This exercise will have you scrutinizing your purchases moving forward, helping you to cut down on your spending.
Money resolution Action Items
To start, gather your previous month’s credit card, debit card, and bank statements. Next, compile them all into a single place. You can use an app, a spreadsheet, or a piece of paper. If you prefer, you can even use toilet paper so you can flush away the evidence when done! It does not matter,
Once you finish, sit back, review, and let it all sink in.
To accomplish this money resolution, you only need to do it for one month. No further action is needed unless you want to dig deeper. You may save your Target receipts or jot down your Amazon purchases line by line. You may also choose to do this exercise every month or every other month. There is no right or wrong answer. The choice is yours.
7. Read One Book On Personal Finance
Last but not least, I challenge you to read one book on personal finance in the next 12 months—only one book. It may sound boring, but you might be surprised how much you enjoy it and how much you learn.
Much like reviewing your spending, you cannot unread what you read. This can have a profound impact on your finances. From my experience, there is always some helpful information that I can apply to my everyday life. This does not mean you will agree with everything you read, but it never hurts to have a different perspective.
Remember, knowledge is power, and it is up to you to decide what to do with it,
Money resolution action items
The actions needed to complete this money resolution are self-explanatory:
Pick one book on personal finance and read it.
The challenge lies in which book to choose. There are thousands of books on personal finance, making it a daunting task.
You can start by reading a best-seller or choosing a book in an area of personal finance you want to focus on. You can also check out my post on the best personal finance books or the one on the five most powerful personal finance books to read.
As far as obtaining the book you have chosen, you can see if your local library has it so you can read it for free, or you can purchase a physical or digital copy. If you have an Amazon Kindle along with a Kindle Unlimted Subscription, you can search for personal finance books that are included in your subscription.
If you are still not sure where to begin, here are a few of my favorites:
Money Resolutions, Putting It All Together
These money resolutions are all about taking small and simple steps to improve your financial habits in the long run.
You don’t have to set grandiose goals to see positive, lasting results. In fact, it’s often harder to follow through with larger money resolutions. That’s why this list of money resolutions is unique – it offers simple and effective ways to improve your finances that require little effort.
Remember, success with money requires patience and perseverance. Every small money victory is a stepping stone towards bigger achievements. Use the money resolutions in this post to score small victories that will motivate you to take on larger goals.
Don’t forget to celebrate your progress along the way and keep pushing forward toward your financial goals.
May the year ahead be a great one for you, and good luck on your money journey.
