The end of one year and the beginning of a new one is a special time for your finances. It’s a perfect moment to reflect on all the things you did right over the past 12 months — and some of the mistakes you made along the way.
If your financial setbacks outweighed the victories in 2022, there are some steps you can take to improve your situation. Let’s get started.
1. Get to Know Your Budget
If you don’t have a budget yet, it’s time to make one. This spending plan helps you understand your cashflow — where’s it going now and where it should go in the future.
Review your spending from the last year to catch any red flags. A new year often jumpstarts a rate increase in many of your regular expenses, like rent, insurances, or bills.
With the essentials taking up more of your hard-earned cash, you may have to pull back on discretionary spending to make things balance.
On the flip side, you may want to consider your essentials carefully. Can you save money by moving, switching insurance companies, or using less energy?
For example, one way to potentially save money on your insurance expenses is to shop around and compare quotes from different companies. This is typically something the average person doesn’t look into on a regular basis nearly enough.
Auto insurance, in particular, can vary greatly in price from one provider to another, so it’s worth taking the time to get quotes from several different companies to see which one offers the best coverage for the best price. As stated by TheZebra’s Kristine Lee, “Getting an auto insurance quote is the best way to see personalized rates and coverage options from insurance companies.”
Keep in mind that price isn’t the only factor to consider when choosing an insurance provider of any kind – it’s also important to look at things like the company’s reputation, financial stability, and customer service record. However, if you’re able to find a company that offers similar coverage for a lower price, it can be a great way to reduce your insurance expenses across the board and free up more money in your family budget for other priorities.
2. Create an Emergency Fund
Not all of your spending will fit neatly into your budget on schedule. Some expenses arrive unexpectedly when your back brake light goes out, or you need urgent dental surgery.
Handling these surprise and expensive bills is easier when you have an emergency fund locked and loaded. Experts recommend keeping as much as six months of living expenses in this account to be prepared.
A goal like that can be overwhelming, so don’t focus on the final target—break it up into smaller savings goals that seem more practical for your budget.
Don’t worry if you’re faced with an unexpected expense before you can save your first $100. You have the option of online loans to help you in emergencies. Once you know where to look, you can apply for a line of credit or installment loan.
If approved, a line of credit or installment loan can act as a one-time backup to your emergency fund.
3. Choose a Debt Payment Strategy
A line of credit or installment loan joins the many personal loans that you might owe right now. Altogether, your debt can feel overwhelming. Where do you even start?
This daunting task gets easier when you lock in on one of these two debt payment strategies:
The avalanche method points your attention to your personal loan or line of credit with the highest interest rate. You’ll want to put all your available cash towards this loan, while also paying the minimum on your other accounts.
Once you knock out this debt, you can put that money towards the next higher interest rate. Keep going until you pay off all your accounts.
In contrast, the snowball focuses on paying the loan with the smallest outstanding balance first. This account gets all your extra debt-paying powers. Just remember to cover the minimum payments on other loans to keep them in good standing.
Once you pay off the smallest account, you can roll its payments into the next smallest. Like a snowball that grows as it falls down a hill and picks up more snow, your debt payments will gain momentum (and size) as you go through your accounts.
Have a Fresh Start in 2023 and Beyond
These three foundations of financial health can help you start the year more comfortably. Good luck!