New Year’s resolutions are notorious for being vague, overly ambitious, and easy to shrug off when the going gets tough. When setting financial goals though, the stakes are much higher; money woes come with real consequences. You could be denied a loan, forced to pay overdue debt fees, or you may struggle with rent or mortgage repayments. The key to setting smart financial goals is to keep them specific, measurable, and realistic. Here are 10 financial New Year’s resolutions to make in 2023 that you can easily set and achieve.
Research from Commonwealth Bank reveals young adults (18 – 29 years) are more likely to set a financial New Year’s goal (nine in ten) compared to those over fifty years old (one in two).
According to Finder, 72 percent of Australians – equivalent to almost 14 million people – set a New Year’s resolution for 2022. The top financial priorities for participants include saving more, spending less, and building up an emergency fund.
Australia has the fifth- highest amount of household debt in the world, with an average of $86,392 per household, according to research from the financial advice and investment website Invezz.
1. Set a personal budget
When you figure out how much money you have coming in and out each month, this can help you find ways to cut down on unnecessary spending.
To do this, add up all your income sources (after tax) for the month, including income from your job, side-gigs, investments, and any claimed government benefits. Then, add up all your monthly expenses, which should include your essentials like utility bills and rent or mortgage payments to luxury spending like streaming subscription services and dining out.
From there, take your total monthly income and subtract it by your total monthly expenses. The full calculation should look like this:
(Total monthly income) – (total monthly expenses) = leftover money
The results of this calculation will help you look for ways to cut down on spending and build up your savings. Check out our online budget calculator to get started!
2. Reduce spending on variable expenses
Variable expenses are expenses you can reduce by making certain lifestyle and financial choices. For example, you may choose to cancel your TV streaming subscription for a few months or spend less money on dining out at restaurants and fast-food outlets.
To decide what variable expenses to change, look at the results of your personal budget calculations. Then ask yourself, “Is there a way I can reduce or eliminate the cost of this expense altogether?” If the answer is “Yes,” make the choice to reduce or get rid of that variable expense for a certain amount of time; that is, until your financial situation improves, and you are comfortable with spending money on those expenses again.
By reducing, or getting rid of, even just a few variable expenses, this can make a big difference to the amount of money you have leftover at the end of each month.
3. Pay off high-interest debts
Do you have one or more debts to pay off? If so, then make it a priority to pay off debts with the highest interest rates first.
While there is no one solid number that defines a high interest rate, credit card interest rates tend to be the highest of all personal loans, as many of them enter the double-digits territory. This means you could be paying anywhere from 10 to 20 percent interest on a single credit card. And if you have multiple credit cards, the combined total interest could be as high as 30 to 40 percent.
For this reason, prioritise your high-interest debts first, even if that means paying off debts that are lower in size than other debts that have lower interest rates.
4. Switch to a new credit card
When dealing with credit card debt, a common strategy is to transfer the balance of an existing credit card to a new card. Why? To take advantage of the zero-interest period on the new card.
After switching to the new card, you can keep paying off the debt, minus the interest. However, only consider this strategy if you are confident that you can pay off the debt in full – before the interest-free period ends. Otherwise, you may end up paying more interest on the new card than the previous one.
5. Do not open new credit cards
Avoid the temptation to apply for a new credit card to make an essential or luxury purchase. Too many credit card applications can reduce your credit score. It can also increase the total amount of interest you pay, meaning less money for your savings.
If you need to make an essential purchase, and you don’t have enough funds in your everyday account, consider reaching into your savings account. You can then top up the savings account later after the next pay cycle.
Alternatively, you could use a Buy Now, Pay Later service, so you can gradually pay off a purchase in affordable weekly, fortnightly, or monthly instalments. Be aware of the risks of using BNPL apps, as their low eligibility criteria makes impulse-buying easy, thereby increasing the risk of spiralling into debt.
In the case of high-value luxury purchases, consider waiting until you can afford the total upfront cost.
6. Set a savings goal
By setting a savings goal, this can incentivise you to spend less money and work towards reaching a rewarding financial milestone. Try to make your savings goal as specific and realistic as possible.
For example, let’s say you can currently save up to $500 per month (after expenses, excluding super contributions). Therefore, a good savings goal could be to save up to $6,000 within 12 months. You can then decide to use those extra savings however you wish, such as go on vacation, fund the purchase of a new car, or deposit into your superannuation account.
7. Review your credit score
Lenders use credit scores and other criteria to determine your eligibility for a loan. The information contained in your credit report is based on personal and financial information collected by credit report agencies. You can reach out to these credit reporting agencies individually to receive a detailed breakdown of your credit report.
The three most common credit reporting agencies in Australia are Experian, illion, and Equifax. Keep in mind, different agencies may collect different pieces of information, depending on their collection methods and use of resources. For this reason, it may be worth reaching out to multiple agencies and then review each report, making sure the information is fair and accurate.
Note: there is a limit on the amount of times you can request a credit report. This is either once every 12 months or within 90 days of receiving a credit rejection.
8. Improve your credit score
If your credit score is lower than expected, there are steps you can take to improve it. First, make sure the information is fair and accurate. If you see any discrepancies in the credit report, speak to the credit reporting agency who gave you the report. You can also reach out to your credit provider or the Privacy Commissioner for assistance. Be ready to provide supporting documentation as evidence, too.
Avoid applying for too many credit cards. Lenders may perceive that as a sign of financial distress and deny your application for a loan. Most important of all, try to pay off your credit cards, loans, and utility bills on time, every time. Too many late or missed payments will negatively impact your credit score.
9. Shop around for better deals
Staying loyal to the same service provider, year after year, does not guarantee the best deal. If you have been with the same service provider for a few years, whether it be for insurance purposes, a mobile data plan, or an electricity and gas service, shop around for a better deal.
There are two ways you can do this: negotiate with your current service provider for a better deal or find a better deal through a different service provider. Most organizations are used to negotiating with customers who demand a better deal, so don’t be shy about inquiring. They probably want to keep you around as a customer and will be willing to work with you to figure something out.
If you happen to find a better deal elsewhere, and your current service provider won’t budge, make the switch. Just make sure you read the terms and conditions of the new deal carefully, so that you know exactly what you are paying for.
10. Consolidate your debts
Debt consolidation is an effective way to combine multiple debts into one monthly instalment repayment plan. You can combine all kinds of debts into one, such as credit cards, loans, and other personal debts.
This involves talking to a debt consolidation expert, so that they can review your current financial circumstances and propose a custom solution for you. Depending on your situation, they may be able to negotiate with debtees (the people owed money) and convince them to lower the total debt amount. They may also be able to lower the total amount of interest on your debt, such as the previously mentioned credit balance transfer strategy.
Debt consolidation experts can also negotiate with debtees to establish a Part 9 Debt Agreement. These agreements consider your current finances, giving you the freedom to pay off your debts over time, through affordable monthly instalments. You can also modify these agreements if your circumstances change later, so you’re not tied to a fixed plan for the duration of the whole repayment plan.
Kicking financial goals in 2023
With the New Year just around the corner, now is the perfect time to assess your finances and prepare for the future.
Whether your finance-related goals are big or small, setting goals – ones that are specific, realistic, and achievable – is a great way to stay motivated and reward yourself. Not only will you feel more confident about navigating your finances, but you will also have the skills, knowledge, and resources to stay in control of your money for the long-term.