A personal finance reboot requires you to revisit the past year’s spending habits. Most credit cards will offer year-end summaries that compile all your past purchases by month and category. Merrick recommends you gather these statements and use them to evaluate where you should adjust your spending.
“I want you to look to see what you did in 2022 — where you spent most of your money, where the allocation went,” she says. “That’s where you can kind of start understanding the bigger picture of how you can fix that.”
You can take an old-fashioned approach by going through printed statements line-by-line. But budgeting apps also automate the process of identifying where your money is going and where you can cut back. CNBC Select ranked the Mint budgeting app as the best overall free option of 2023 for its ability to customize your expense categories and savings goals. Another free app tailored toward beginners looking to plan their spending is Goodbudget.
Consider a strategy for paying down debt
Paying down debt is a common financial resolution people make for the new year. Over the holiday season, shoppers often spend more money than usual, leading to a rise in unexpected debt. CNBC Select recently reported that the average amount of holiday debt Americans took on in 2022 increased 24% to $1,549.
“I want you to look to make sure that your credit cards are not in trouble,” Merrick says. ”[Make sure] you haven’t defaulted. Make sure that you paid on time.”
This year, taking care of that debt may seem much more difficult due to high-interest rates. One strategy Merrick recommends is debt consolidation, which is the process of taking out a new loan to pay off multiple existing debts. The goal is to combine multiple payments into a single loan with a lower interest rate, which can make it easier to manage the debt and potentially save money on interest payments in the long run.
CNBC Select ranked LightStream Personal Loans as one of the best loans for debt consolidation due to its repayment terms which range from 24 to 144 months. Plus, qualified borrowers can apply for up to $100,000, and this lender doesn’t charge an origination fee, early payoff fee, or late fee.
Keep in mind that you’ll need good credit (or better) to qualify for a LightStream Personal Loan. For those who have fair or average credit, we recommend looking into Upstart Personal Loans.
Remember to weigh factors such as late fees and repayment terms before choosing a debt consolidation lender. Additionally, you should keep in mind that consolidation does not make the debt disappear, it only transfers it from multiple sources to one.
Another smart strategy for paying down debt is to use a balance transfer card with a 0% intro APR period. You can transfer an existing card balance to a new credit card, such as the Wells Fargo Reflect® Card or the Citi® Diamond Preferred® Card, and make payments without being charged interest for a limited period of time. This should help you pay down the balance faster, since your money is going toward the principal and not the interest.
Much like with debt consolidation loans, you should do your homework before choosing a balance transfer credit card. Weigh factors such as fees, repayment terms, intro-APR-period length, annual fees and interest rates before submitting an application.
Set goals for 2023
Beyond thinking about what expenses you can cut, you should also consider what items or experiences are worth your hard-earned cash. It’s easier to stick to a budget once you have measurable targets to strive for, whether it’s a big trip or paying off a car.
Setting clear financial goals gives you an idea of where to prioritize. To reach those goals, your plan could include a combination of adjusting your spending, increasing your income or finding new ways to invest your money.
To bring a bit of fun into this process, Merrick encourages people to find an accountability partner to share in the excitement of working toward a goal. Every month, she suggests setting aside a set amount, such as 10% of your paycheck, and earmarking it for that specific purpose.
“If you know, ‘I have to set aside this much money every single month,’ you just have to do it, not think about it, and live off the rest,” Merrick says.
For short-term financial goals, high-yield savings accounts can help you grow your money by earning a much better return than a traditional savings account. The Marcus by Goldman Sachs High Yield Online Savings is a solid option since it doesn’t charge fees for overdrafts or excessive transactions. Automating your transfers to a savings account can help this process, making it easier and helping you know that you’re continuously growing your account.
Bottom line
The start of a new year presents a fresh opportunity to consider what financial milestones you hope to reach in 2023. Merrick recommends making consistent, regular contributions to your savings for each of those goals.
The first step toward meeting those goals is by looking at the past. Reviewing last year’s spending can be a helpful first step in determining where you need to adjust to make progress.
