A new year is here. And even if you've already broken the resolutions you made at the end of the holiday season, it's never too late to make new ones, especially when it comes to your finances.
Here are eight financial decisions you can make now that you'll never regret. Make the moves on this list soon, and you'll dramatically increase your odds of a happy financial future.
1. Save More for Retirement
How much money will you need each year to enjoy a happy and healthy retirement? That depends on what you want to do after you leave the working world. You'll need more money if you plan to travel the world, and less if you envision days spent reading, binge-watching TV, and playing with your grandchildren.
A survey released last April by the Employee Benefits Research Institute suggests that more workers understand they'll need large amounts of money to enjoy their retirement years. The survey found that more than one in 10 workers think they'll need to save at least $1.5 million for their retirements. That's a lot of money. One way to reach such a lofty goal? Put away as much as you can each year now, even if your retirement days seem far away.
You'll never regret your decision to maximize your contributions to your 401K plan or your annual deposits to an IRA. Start boosting those savings today.
2. Building an Emergency Fund
What happens if your furnace conks out today? What if your car's transmission needs to be replaced? If you're like too many people, you'll put the cost of replacing these items on your credit card, building your debt.
The better option is to draw from an emergency fund of cash that you have already saved, usually in a savings account. Financial experts recommend that you build an emergency fund that can cover at least six months of your daily living expenses. (See also: 6 Emergency Fund Myths You Should Stop Believing)
This might seem daunting. But if you deposit what you can each month — even if it is as small as $100 — that emergency fund will steadily grow.
3. Pay Off Your Credit Cards
Carrying a balance on your credit cards each month is a terrible financial decision. That's because cards come with such high interest rates — sometimes 18% or more. This makes your monthly debt grow by too much, even if you don't add any new purchases to your cards.
Don't just make the minimum monthly payment on your cards. If you do this, it will take far too long to pay off your credit card debt. Say you have a credit card with a balance of $5,000 and an interest rate of 18.9%. If your minimum monthly payment is 4% of your outstanding balance, it will take you more than 11 years to eliminate this debt, even if you don't make any new purchases with this card.
The better move is to always pay more than the monthly minimum. And don't buy items with your cards that you can't afford to pay off at the end of every month.
4. Pay Your Bills on Time Every Month
A single missed payment — on credit cards, mortgage loans, auto loans, and other debts — can drop your three-digit FICO credit score by 100 points. That missed payment will also stay on your credit report for seven years.
Decide today to never make a late payment again. Having a low credit score makes it difficult to qualify for loans or credit. When you do qualify for these loans, you'll be faced with high interest rates.
5. Buy a Home That You Can Actually Afford
It's tempting when home shopping to stretch your budget to get into a bigger, more expensive home. But buying a home that's out of your budget, even by a bit, can be a big financial mistake. Those monthly mortgage payments can quickly become a burden.
Instead, buy a home that you can comfortably afford, even if it's not your dream residence. Mortgage experts recommend that your total monthly housing expenses, including your estimated new mortgage payment, be no more than 30% of your gross monthly income. Follow this guideline if you don't want to feel the strain each time your monthly mortgage payment comes due.
6. Track Your Spending
You might be surprised by how much you spend each month on take-out lunches or morning coffee runs. But if you create a spending book and track those expenses, it might help you make lifestyle changes that can add up to big savings each year.
A spending book is just a notebook in which you record all your daily purchases for a set period of time, usually anywhere from two weeks to two months. Once you're done tracking your expenses, add them up. This gives you an idea where you are overspending. (You can also use automated tracking at free sites like Mint.com.) If you're spending too much on those morning coffees, for instance, you might decide to limit your time at Starbucks to twice a week instead of five times.
7. Create a Household Budget
You might shudder at the thought of drafting a budget for your household. But you can't get control of your finances if you first don't know exactly how much money is coming in and going out of your home each month. Fortunately, creating a budget isn't difficult.
First, write down the income you receive each month. Then write down those monthly expenses that never change, everything from your mortgage payment to your auto payment to your student loans. Then, write down those payments you make each month that fluctuate a bit. This would include your utility bills, credit card bills, and transportation costs to and from work. Estimate these. Finally, include estimated amounts for monthly groceries, entertainment, and eating out.
Once you have these figures, you can determine how much money you should have left at the end of the month. Armed with this information, you can figure how much money you can save, invest for retirement, or put away for a child's college education.
8. Save First, Then Buy It
You want that new computer or that high-end flat-screen TV. It's tempting to simply use your credit cards, but the better move is to save up for that big-ticket non-necessity, and only buy it when you can pay for it with cash.
This takes patience, of course. It might take you several months to save up for that new TV. But you'll enjoy your new electronic treat more if you don't have to dread next month's credit card bill.
This article first appeared at Wise Bread.