You might be surprised at how few New Year's resolutions are actually achieved (or maybe you know all too well!). These pledges not only tend to fail in the long run but most are given up before they’ve even had a shot to succeed. Sadly, one study found that 80% of New Year's resolutions are abandoned by February.1 Why is there such poor follow-through?
A big reason is the lack of specific goals. Several studies show that specific and challenging goals can dramatically improve performance.2 For example, instead of saying, “my New Year’s resolution is to lose weight,” you could give yourself a greater chance of success by saying, “I’m going to the gym four times a week and not eating any foods with added sugar until I lose 10 pounds.”
With that in mind, consider how you can set yourself up to achieve your New Year's resolution financial goals. Here are several resolutions you could make for 2023, as well as some steps we believe put you in a better possible position to achieve them.
1. Save more money
Not surprisingly, saving more money is the most common financial New Year’s resolution regarding financial health that Americans make, according to an Experian study.3 But simply saying, “I’m going to save more money in 2023,” doesn’t exactly give you the highest probability of success.
Tactics: We believe one of the most effective ways to maximize your likelihood of achieving this goal is to make it automatic. Try automatically transferring your checking account to a separate savings account just after every payday. It can be a modest amount at first if you want to ease into it. But automating the process makes it much easier.
Another technique is to identify unnecessary expenses and redirect that money into savings. Just to name a few examples, there’s a good chance that you pay for some sort of membership or subscription you don’t use, and many Americans simply don’t realize how much money they spend dining out. You might be surprised at how much spending you could do without.
2. Prioritize your retirement investments
Are you on track to have enough money when you retire? If you’re contributing just enough to your 401(k) to take advantage of your employer’s match or are making small IRA contributions every so often, you may not be saving enough.
Many financial planners suggest that you aim to save 10% of your gross income in retirement accounts, not including any contributions your employer makes.4 The average American contributes about 7% of pay into their 401(k), according to Vanguard, so many people have room for improvement.5
You don’t need to get there right away. But the faster you do, the greater the chance you can grow your wealth through compounding. How much are you allowed to contribute each year? It depends on your age and which type of retirement account you’re contributing to. The maximum amount you can sock away in a 401(k) for 2022 is $20,500 if you are under age 50 ($27,500 if over 50). And if you are funding your IRA, you can add $6,000 for this year ($7,000 if over 50).
Tactics: Maybe you can increase your savings rate by a small percentage in 2023 and do the same in future years until you get to 10%. Or, if you’re getting a raise in 2023, perhaps use part of that raise to increase your contributions. A seemingly small contribution increase can potentially have a big impact on your financial well-being in retirement.
3. Get your debts under control
The average American has nearly $5,800 in credit card debt,6 and the average credit card charges interest of 18.4% as of August 2022.7 That rate is likely higher now since interest rates continue to rise.
This is why paying down high-interest debt should be a top financial goal, even greater than setting aside money to invest in most cases. Think of it this way–if you have credit card debt at 18% interest and you invest money in an S&P 500 index fund and get a 10% annualized total return, you’re actually setting yourself up to lose money over time.
Tactics: Make it a priority to get rid of your credit card debt in 2023. You could set an automatic payment on your credit cards that is more than your minimum payment. Or you could use the “debt snowball” method and focus on your smallest credit card balance until it’s gone, and then move on to the next smallest. And if you can’t get rid of your credit card debt in a timely manner, a 0% APR balance transfer or a lower-interest personal loan could be alternatives worth looking into.
4. Work on your credit
Even if you already have a strong credit score, raising it could be an excellent financial goal for 2023. According to myFICO8, which is made by the creators of the widely used FICO® credit scoring model, the average consumer with a credit score of 740 (considered very good credit) would pay over $20,000 in additional interest on a 30-year $400,000 fixed-rate mortgage compared with someone with a 780 (considered excellent credit), as of early December.9
Tactics: Reducing credit card debt is one way to positively impact your credit score. But there are other methods, and it’s only one of many possible ways to improve it.
Aside from paying down debts, consider these other ways to improve your credit score in 2023:
- Only apply for new credit when necessary.
- Don’t close unused credit cards with $0 balances–these typically help your score.
- Make more than the minimum payments on your installment loans to reduce your balances.
5. Take care of your health
This may seem odd in an article about financial New Year’s resolutions, but hear us out.
Getting in shape, maintaining a healthy weight, and eating a healthy diet are often directly related to your financial health.10 How, you ask? While paying for a gym membership or eating more fruits and vegetables (versus potato chips, for example) may cost more in the short term, they generally can do wonders for your financial health later in life.
According to a report by Fidelity, the average 65-year-old couple will need about $315,000 to cover healthcare expenses in retirement.11 This may sound like a lot (and it is), but the number can get much higher for retirees in poor health.
Tactics: Work with your health and wellness professionals to create or update your fitness plan. Sure, there’s quite a bit about health care expenses that isn’t in your control. Even the healthiest people can unexpectedly get sick. But taking time to invest in your health now should give you the best chance of manageable healthcare expenses in retirement–not to mention the best chance at a longer, healthier, and (we think) happier life.
Make financial fitness a year-round endeavor
To be clear, this isn’t meant to be an exhaustive list of the best financial New Year's resolutions, and not all of these pledges will be necessary or practical for everyone. But the bottom line is that there are several ways you can choose to improve your financial health. Pick which may work for you, set a goal, and keep up the effort. Because these shouldn’t be temporary changes. Rather, we think they are smart financial habits to develop and implement no matter what time of year it is.
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