Young woman counting money.
Jose Luis Pelaez Inc
As the calendar turns to a new year, many Americans are vowing to change their money habits.
To that point, 48% of investors recently surveyed by Allianz Life Insurance Company say they are more likely to make and keep a financial resolution in 2024 to either save more or manage their money better.
That includes paying down credit cards, building emergency savings and investing more towards retirement.
Experts say the best way to tackle those money goals, and make sure they do not fall by the wayside, is to make them automatic.
Many people start with the bills, including rent, mortgage, utilities and food, and wait to save money with whatever is left over, noted Lawrence Sprung, a certified financial planner and founder of Mitlin Financial in Hauppauge, New York.
“A resolution that we talk about very, very frequently is paying yourself first,” said Sprung, who is also the author of the book “Financial Planning Made Personal.”
To be sure, finding extra money to set aside or pay down debts can be difficult now, with Americans still feeling the stress of a higher cost of living.
Allianz’s survey found 73% of respondents say their pay hasn’t kept up with inflation, even after pay increases.
Meanwhile, 82% said the restarting of federal student loan payments will make it tough to make ends meet.
Separately, a recent Bankrate survey found that 59% of adults feel the economy is in a recession, even though economists say the economy is strong.
Elevated financial stress can make prioritizing short- and long-term money goals feel more difficult.
“It takes a lot of discipline, especially when money is tight,” said Kelly LaVigne, vice president of consumer insights at Allianz Life.
To stay on track, it helps to write down your to-do list, he said.
Experts also recommend scheduling the payments you want to make ahead of time.
1. Make credit card payments a priority.
If you have outstanding credit card debt, paying down that debt should be your first priority, according to LaVigne.
“You’re losing money significantly by not paying those balances as quickly as you can,” LaVigne said.
As the Federal Reserve has raised interest rates, credit card debt has become more expensive, with some borrowers facing interest rates of 20% or higher, according to LendingTree.
“Paying on time, every time, is job number one for anyone with a credit card,” said Matt Schulz, chief credit analyst at LendingTree.
If you’re 30 days late one time with a credit card payment, that can do serious damage to your credit rating, he noted.
Setting up auto pay, either through a bank’s or credit card issuer’s website, can help ensure you do not miss those deadlines.
While auto pay is a “good thing,” it doesn’t completely absolve you of responsibility, Schulz said. Because technology is imperfect, you still need to keep track to make sure the payments go through. Moreover, some months you may want to pay more than others to knock those balances down.
Over time, making automatic payments can be a winning strategy.
“The easier you make it on yourself to pay down your debt, the more likely you are to stick with it,” Schulz said.
2. Build emergency savings.
To avoid running up credit card balances, it helps to have some emergency cash set aside.
Experts generally recommend having at least three to six months’ living expenses in an emergency fund.
As interest rates have climbed, you can earn more on those savings. Some online savings accounts are currently offering rates as high as 5% or more, according to Bankrate.
To make sure you regularly contribute funds towards your savings, it helps to have the money automatically deducted from your paycheck into your bank account.
3. Ramp up retirement investing.
As you juggle higher living costs and other financial priorities, it can be tempting to put investing toward retirement on the back burner.
But your most powerful asset when it comes to retirement is time. The more time your money is invested, the more opportunity there is for it to compound, or to earn interest on interest.
If you have a workplace retirement plan like a 401(k) plan, experts say it’s wise to invest at least up to the company match. For example, if you contribute 5% of your salary, your employer may also put in 5%. While terms may vary by employer, that’s free money you don’t want to miss out on.
When deciding how much of your total income to set aside, Sprung said 10% is a good general rule of thumb.
“Pay yourself that 10% and then utilize the remaining 90% to pay all those bills,” Sprung said.
Once you get used to living off 90% of your income, you won’t miss the 10% you’re saving, he explained.
“Automation is key, because once you do that and you don’t see the money, it makes it so much easier to live off of that 90%,” Sprung said.
It’s up to you to decide how to allocate that 10%, such as devoting half toward emergencies and the other half toward retirement.
“You have to determine where those savings need to be directed, and where you need them the most,” Sprung said.
