The New Year brings fresh possibilities and the chance to make positive changes, and now’s a great time to review where you want to be financially and set goals to get there. Here are some tips on setting personal finance goals for the year ahead.
Check Your Credit
Your credit history and credit score affect much of your financial life. Lenders use your credit report to qualify you for credit (e.g., mortgages, car loans, credit cards, student loans, personal loans). It shows your payment history—how well you previously handled credit—as well as the status of current accounts. Even landlords and potential employers may look at your report before they make a decision, so you want to ensure it’s accurate. Plus, checking it could help you spot signs of identity theft.
You can access your free online credit report once a year from the 3 major credit reporting agencies.
Your credit score is a calculation made using multiple factors, including what’s in your credit report. With Navy Federal Credit Union’s Mission: Credit Confidence® Dashboard, you have all the tools you need to take control of your credit score. You can set up monthly updates to monitor your score. You can also test out different scenarios using the Score Simulator to see how different actions can affect your score.
Build an Emergency Fund
Having an emergency fund ensures you’re ready to meet unexpected challenges like job loss, medical bills or car repairs. If you don’t have one, start the New Year off right by opening an account where you can set aside some money.
Keep your emergency funds separate from the account you use for spending or paying bills. Put the money in an account that earns interest, like a certificate or money market account. The interest will help your fund grow faster, and you’ll be less tempted to spend the money.
How Much Do I Need?
A good rule of thumb is saving 3 to 6 months’ worth of living expenses. But, if you’re just getting started, begin with a smaller goal—like $1,000. You don’t need to save it all at once—break it into manageable amounts that you add regularly.
Are There Ways to Build My Savings Faster?
Consider turning expenses into savings. If you’re working from home instead of commuting to an office, use the money you would’ve spent on gas or lunches out for savings. You could also find other ways to save, like canceling subscriptions you don’t use, asking for new quotes on auto or home insurance, or reducing TV or internet plans. Navy Federal members can set up automatic transfers from checking to savings accounts to earn even more.
Pay Off Debt
Since most people can’t afford to pay for a car or other large purchases with cash, they have debt. You can reduce its impact on your budget by making a plan to pay off as much as possible, as soon as possible. You’ll pay less interest and have more resources if you need to rebound from a financial setback.
Two Simple Plans to Reduce Debt
Many people use one of two simple plans:
- Avalanche Method. The avalanche method focuses on paying off accounts with the highest interest rates first, because that saves the most money over time. You pay all your minimum payments, but on the account with the highest interest rate, you pay extra each month. Once that account is paid off, use its payment to add to the payment for the account with the next highest rate and so on.
- Snowball Method. The goal for the snowball method is to reduce the number of bills you have, so you’ll focus on the accounts you can pay off the soonest. You make minimum payments, but add extra to the account with the lowest balance. Once that’s paid off, add its payment to the account with the next-lowest balance and so on. You probably won’t save as much money in interest as you would with the avalanche method, but seeing one less bill each month is a great motivator!
Think Beyond the Short Term
While it’s smart to focus on your current financial situation, don’t ignore the future. Long-term savings goals like college or retirement are time-sensitive. So, as you make decisions that affect you this year, consider long-term goals, too.
Many people reduced contributions to IRAs and other retirement accounts during the early days of the pandemic out of concern that their income could change. However, there’s a solid reason to continue or restart them. You’ll want to stay on track for retirement, so you’ll have the funds you need in the future.
Also, check how aggressively your funds are invested. Does it match your risk tolerance? Or would you be more comfortable if you temporarily shifted your investments to lower-risk categories?
Consider Refinancing Your Loans
You also might want to think about refinancing loans you currently have, like student loans, auto loans or even your mortgage. If you refinance to a lower interest rate, you could save on your monthly payments and apply that savings toward paying off other debts.
With so many factors to consider, you may want help navigating your plan for the future. Navy Federal offers Personal Finance Counseling to help members take the next step toward financial success.
This content is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.