Last updated on February 21st, 2024 at 01:13 pm
Different cultures across the world have their own special ways to mark the coming of the New Year. But, wherever we’re from, many of us will want to take this as an opportunity to make a new start—whether that’s planning a career change, embracing a healthy lifestyle, or improving our finances.
If you’d like to lay the foundations for financial success, this is the Remitly guide for you. We’ll look at some key steps to take when planning your budget in the coming months.
1. Set financial goals
Setting financial goals is a great starting point for financial success. Having goals gives you something to work toward, and as you achieve what you set out to do, the sense of satisfaction you get from the accomplishment can encourage you to continue down the path toward financial health.
Some financial goals can include:
- Establishing an emergency fund so that you don’t have to borrow money or use credit cards when unexpected expenses arise
- Starting your retirement savings
- Saving for your, your child’s, or another family member’s education
- Paying off debt
- Saving for a major purchase, such as a home or a car
- Growing your overall net worth
Setting SMART goals
As you set goals, be sure they follow the SMART rule, meaning that they’re:
- Specific
- Measurable
- Achievable
- Relevant
- Time-bound
Let’s review what each of these terms means.
Specific
The goal spells out what you intend to do. For example, “I will save money for a down payment for a home” rather than “I will save more money.”
Measurable
There is a way of measuring whether or not you achieved the goal. For example, “I will save $10,000 for a down payment for a home” would be measurable.
Achievable
The goal that you’re setting should be something you can realistically do. For example, “I will become a millionaire in one year” is likely not an achievable goal, while “I will save 1 million dollars by the time I retire in 40 years” might be.
Relevant
The goal should positively impact you and relate to your overall personal goals. For example, saying that you’ll pay down debt if you only have one small outstanding credit card balance might have little impact.
Time-bound
Include a time frame for accomplishing your goal, such as “I will save $10,000 for a down payment for a home over the next three years.”
2. Know your spending habits
There’s no better time than the dawn of the New Year to sit down and take stock of exactly how much has been leaving your account every month. The trick with working out your spending is to be as forensic as possible.
You’ll want to use hard data rather than trying to estimate your spending. A good online banking app can come in very useful, as it should let you look back and chart exactly how much you spend on:
- Home utility bills
- Phone and broadband bills
- Debt repayments
- Gas and/or public transport
- Home, car, and other insurance policies
- Groceries
- Clothing
- Entertainment expenses
This will give you the most accurate picture of your outgoings. Remember to include infrequent payments in this overview.
Buying new furniture, getting school clothes for your kids, or paying for eyeglasses, for example, may not have come up in your most recent bank statements.
Now, you’ll be ready to work out a better budget going forward, including how much you should save by using something known as the 50/30/20 rule.
We’ll look at that in more detail shortly, but first, there’s an important point to address to improve your finances.
3. Prioritize debts to improve your personal finances
When you make a New Year’s resolution to improve your finances, it’s tempting to think about savings. But first, look at any debts.
That’s because the interest you’ll have to pay on, say, loans or credit card debts will probably be more than any interest you might gain from money you put into a savings account.
So, rather than setting aside a proportion of your monthly earnings for savings, it may make better financial sense to use that money to pay off expensive debts first.
Once those are taken care of, you can focus on building up your finances from a solid foundation.
How to pay down debt
If you have multiple debts, consider following the highest interest rate method when paying things down.
To take this approach:
- Gather your credit card statements, medical bills, documents for car loans, and other outstanding debts.
- Make a list of all of your debts, the outstanding balances, and the interest rates.
- Rank the debts from highest to lowest interest rate.
- Start making extra payments to the debt on the top of your list when paying bills.
- Move on to the next item on the list after paying off the first.
As you work to pay off debt, consider refinancing large debts with high or rising interest rates. For example, refinancing a variable-rate mortgage to a fixed loan with a longer term could reduce your payment size and give you more money to pay down other debts.
4. Budget wisely
Now, it’s time to calculate your monthly budget. How much should you spend on various aspects of your life, and how much should you save?
That question can make many of us scratch our heads, but this is where the 50/30/20 rule comes into play. It’s a well-known budgeting strategy that divides your post-tax monthly income into three spending components:
- 50% on ‘needs,’ such as your rent, bills, and financial support for loved ones
- 30% on ‘wants,’ such as going to bars and restaurants, paying for an upgraded laptop, or having a Netflix subscription
- 20% on savings (or paying off debt)
Let’s say you’re living in the UK, and your post-tax monthly income is £1,300. You should, therefore, aim to spend:
- £650 on needs
- £390 on wants
- £260 on savings or debt
Obviously, these percentages are flexible for everybody, and you can adapt them to meet your particular circumstances.
If your salary fluctuates, you can take an average of the past three months and apply the percentages to that amount. These general parameters can give you an idea of how to tweak your spending to allow you to meet your target for savings.
If you’re currently spending too much on ‘wants,’ you might cut down on how many takeaways you order per month or put a streaming subscription on pause.
5. Work out your savings goals
You’ll need to find the best possible savings account to make your money work for you. Banks offer different savings accounts that pay out at different interest rates, so sit down and compare the options available to figure out what’s right for you.
Consider your savings goals and whether they’re short- or long-term.
Do you want a safe place to build an emergency fund for unexpected expenses? Improve your finances? Are you saving for a big event soon, such as a trip to a friend’s wedding? Or are you saving for a longer-term goal, like a down payment for a house? These factors will determine the account you should open.
Some accounts work like ordinary current accounts, allowing you to withdraw money whenever you want. The interest yield is likely to be far smaller with these accounts. Still, they may be a good choice if you expect to require funds soon, such as for a holiday, or if you want this to be your emergency fund.
You may prefer a savings account where your money is effectively locked away for a set period—for example, two years. They tend to offer higher interest payments, but withdrawals are impossible or come with fees. This kind of account is ideal if you’re setting money aside for a bigger investment later.
Once you have a savings or investment account established, consider setting up automated savings. Many banks will allow you to transfer a certain amount of money from your checking account to your savings on a set schedule, such as once per month or twice per month when you receive direct deposits from your employer.
6. Stay savvy about essential spending
It’s easy to spend more than you need to, even for essentials. Stay savvy by looking for where to make even the smallest savings to improve your finances.
Take food, for example. Buying branded products can rack up far higher grocery bills than sticking to a shop’s own-brand items, which are often as good. And, if you’re currently paying off your credit card, you may be able to lessen the sting of high-interest payments by transferring your entire balance to another card offering 0% interest for an extended period.
If you’ve moved to work and live in a new country, setting aside some of your income to support loved ones back home may be essential.
In this case, you can help save more by using a money transfer company like Remitly, which is committed to providing low transfer fees and highly competitive exchange rates with every remittance you make.
Every measure you make to cut costs, whether with your daily shopping or sending money to the people you love, can help make a real difference to your financial status this year and beyond.
7. Start your retirement savings as soon as you can
Even if it feels like retirement is a long way off, it’s never too soon to start saving money for the future. Due to the effects of compound interest, putting just a small amount of money aside each month for retirement can be a smart financial strategy.
While you can save money in a traditional savings account for retirement, interest rates for these types of accounts tend to be low. As a result, many financial planning experts recommend putting retirement savings in an investment account.
One way to do so is by taking advantage of retirement plans offered by your employer, such as a 401(K). If your employer doesn’t provide one, you can open an individual retirement account (IRA) on your own. Retirement plans often allow you to set aside some of your wages before taxes as savings.
Because there are many ways to invest money in retirement plans, talking to a financial advisor before you open one is a good idea. An advisor can give you money management advice and help you build an investment portfolio tailored to your goals.
8. Protect your financial health with insurance coverage
In addition to establishing an emergency fund, purchasing insurance is a good way to secure your financial future. Insurance helps to protect you against financial losses and expenses. There are a few types of insurance that most people should carry. Let’s take a look at them.
Health, dental, and vision
Health insurance helps to cover medical expenses. If you work, you may be able to obtain health care insurance through your employer. Otherwise, you can purchase health coverage through the federal marketplace or your state’s marketplace. Visit Healthcare.gov to learn more.
Most healthcare insurance policies don’t cover dental and vision, but you can purchase separate vision and dental insurance. Some employers also offer health savings account options that let you set aside some of your paycheck for medical bills.
Auto
Auto insurance helps to pay for repairs and medical bills related to auto accidents. If you own a car, your state will likely require you to have a minimum amount of coverage to register your vehicle.
Property
Property insurance includes homeowner’s insurance for houses you own and renter’s insurance for apartments and homes you rent. These insurance policies help pay for repairs and replace your belongings in the event of theft and disasters like fires.
Life
Life insurance pays a death benefit to a person or people that you designate when you die. A life insurance policy can ensure your loved ones have funds to cover your final expenses, settle your debts, and replace your income if they rely on it.
Other types of insurance
Depending on your personal finance situation, you may benefit from having other types of insurance, such as:
- Disability insurance: Helps to replace your income if you’re unable to work due to an injury or illness
- Mortgage life insurance: Pays off your mortgage if you still owe a balance at the time of your death
- Pet insurance: Covers the costs associated with vet care for pets
- Long-term care insurance: Provides money to pay for stays in personal care and nursing homes in the future
- Identity protection insurance: Helps to pay for expenses related to rebuilding credit if your identity is ever stolen
When shopping for any type of insurance, be sure to obtain quotes from multiple companies so you can compare pricing and coverage features.
9. Limit your subscriptions
Many companies now use the subscription model, where you pay regularly to access a service. Subscriptions for things like streaming services are OK as long as you can afford them and your other bill payments. The problem comes when you sign up for a subscription and stop using the provided service.
For example, say you sign up for two streaming services to binge-watch specific TV shows but never use them after that. Each month, you continue to pay the fee for nothing.
To avoid wasting money, list your subscriptions, how much they cost, and when they renew. Review the list periodically and cancel any services you no longer use.
10. Be a smart shopper
Becoming a smarter shopper is a great addition to any financial resolution. Making good decisions when you buy things can improve your cash flow, giving you more money to pay down debt, save for the future, or add to your emergency savings.
While there’s really no such thing as free money, you can often find deals on the things you need if you take a smart approach to shopping by:
- Comparing prices at multiple retailers before you shop
- Keeping tabs on sales at drugstores, grocery stores, and big box stores in your area
- Buying things that you use all the time in bulk
- Taking advantage of paper and online coupons
- Checking websites like RetailMeNot to look for promotional codes for online stores
- Using a browser extension like PayPal Honey or Capital One Shopping to find coupon codes and discounts
- Joining loyalty programs to earn discounts and free items
11. Take steps to avoid fees
Juggling all the bill payments you need to make can be challenging. You need to remember minimum payment amounts and due dates and ensure you either send a check or log in to pay bills on time. When mistakes occur, you can end up paying hefty late fees.
To reduce wasteful late charges, consider automating your bill paying through services provided by your financial institution and the companies you pay.
Your bank may allow you to set up regular payments deducted from your savings or checking account each month and then send them electronically to your billers. If your bank doesn’t offer this service, contact each company to see if you can set up automatic payments from your bank account.
Automating as much as possible will reduce the risk of late fees and make money management simpler.
12. Maximize your income
If income limitations are standing in the way of your financial freedom, consider ways to make extra money.
You could start your own business as a side hustle or work as an independent delivery or ride-share app contractor. Or, you could sell things you no longer need through social media groups or online platforms like eBay, Poshmark, and Mercari.
Having some extra money coming in each month can increase your financial security and open the doors to good money management. Check out our article on popular side hustles for U.S. immigrants for more ideas.
13. Keep an eye out for fraud
Scams and identity theft can rob you of your hard-earned money and damage your credit score, making it harder to obtain loans in the future. To protect yourself, familiarize yourself with common scams. Our articles on money transfer scams and holiday scams are good starting points for your research.
Also, keep an eye on your financial picture by ordering copies of your credit reports from the three credit reporting bureaus each year. You can request your free copies at AnnualCreditReport.com.
Once you receive the reports, look them over carefully. If you see any errors or unfamiliar entries, follow the FTC’s guidelines for filing disputes.
14. Plan for your tax season
Even though you only pay income tax on your personal taxable income once per year, thinking about taxes all year can help you avoid undesirable tax implications and possibly save you money.
A tax professional can help you determine what tax-deductible items you may qualify for to maximize your tax refund and can assist you with planning your finances with taxes in mind. Use the IRS search tool to find professionals in your area.
Make managing money a top priority
As you set your new year’s personal finance goals, remember that you don’t need to follow extreme money strategies to secure your financial future. Making small changes to your habits can help you start to save for your next major life event, pay down debt, and achieve other goals.
If you frequently send money home to your loved ones, switching to Remitly can help you save money. We make international transfers easy and affordable and offer competitive rates and fees. Download the app to learn more.