Money management can sometimes feel overwhelming, particularly when dealing with economic factors such as inflation. Yet the start of a new year is a great time to take a closer look at your finances and make a plan for the year ahead.
Below, we share five simple ways to take charge of your finances and set yourself up for a prosperous year ahead.
Assess Your Financial Situation
One of the best ways to manage your money is to have a clear sense of how much you have coming in and going out each month. We recommend making a list of your current income and expenses to get a complete picture of how you’re spending your money. This should include:
- All sources of income (including part-time or side gig income)
- Rent or housing expenses
- Transportation expenses
- Entertainment expenses
Set Financial Goals
Next, it’s time to think about your goals for the year ahead. Are you hoping to increase your emergency savings or set aside more in your 401(k)? Be sure to write down these goals so you can have a better idea of which areas to focus on.
We also recommend that you prioritize your list so that the most important goals stay top of mind. Focusing on two or three main goals is a great way to boost your financial health without feeling overwhelmed.
Establish a Manageable Budget
Once you have your goals in place, you can create your budget. This should take into account your regular monthly expenses (such as housing and transportation) as well as additional expenses including hobbies and entertainment.
To truly optimize your budget, you may want to consider following the 50/30/20 rule which takes into account your current needs and long-term goals. Here’s what your budget breakdown should look like:
- 50% will be allocated to needs (including recurring expenses)
- 30% will be allocated to wants (such as nice-to-have items for your home)
- 20% will be allocated to financial goals (including your emergency fund and retirement savings)
By taking a strategic approach to budgeting, you can limit any unnecessary spending and create a plan you can stick to.
Automate Your Savings
Taking the guesswork out of saving is also a great idea, and automating the process can help. You can do this by setting up a recurring transfer from your checking account to your savings account or increasing the contributions to your 401(k) or IRA.
Shifting the money into other accounts automatically will ensure that you’re paying yourself first and not overspending. If the unexpected happens, having emergency savings in place will allow you to handle the expenses more easily without sacrificing your regular income in the process.
Pay Off Existing Debt
Making a plan to pay off your outstanding debt is another important opportunity to improve your finances. Debt consolidation with a Discover® personal loan is one way to do this, and it could help you save hundreds—or even thousands—of dollars on interest over time by consolidating higher-rate debt. Discover’s debt consolidation calculator can help you estimate your savings and show you how much faster you may be able to pay down higher-rate debt.
As an added benefit, Discover personal loans offer flexible repayment terms so you can choose the one that works best for you. Additionally, you can lock in a fixed rate so that your set regular monthly payment will never change and you know the exact date of your final payment.
Starting a new year off on the right foot is all about setting achievable goals and making them happen. With a clear plan in place and the right solutions, you can feel confident in your financial plan for the upcoming year.