The new year is here, which means it’s a great time to add some financial goals to your resolutions. But if you haven’t started improving your finances yet, not to worry. By taking action now, you can still kick off 2023 with momentum. To help you out, this article will dive into four ways you can start off the new year financially strong.
1. Pay off debt using a debt payoff method
Paying off debt can free up significant room in your budget and save you money monthly on interest. There are two common strategies to pay off your debt:
The debt snowball method involves paying off debts from smallest to largest. Set all larger debts to their minimum payments and put your extra money toward the smallest. Once you pay that off, it’s time to move on to the next one. Repeat the process until you’re debt-free. This method saves you less on interest but helps you build momentum by paying off smaller debts fast.
The debt avalanche method goes in order of interest rate, from highest to lowest. Start with the highest interest debt, then move downward based on the rate with each debt you pay off. This method may require more patience and consistency, but you’ll save the most on interest by prioritizing debt with higher interest rates.
2. Make sure you’re on track with financial goals
Reviewing your financial goals before the new year helps you see if you’re on track or if you need to find ways to increase your savings. For example, look at your retirement accounts and see if you’re on target to hit the amounts needed for retirement. If not, consider upping your contributions or opening an additional retirement savings account. Other goals to look over include:
- Creating an emergency fund
- Saving for a home
- Funding your children’s college
3. Get a life insurance policy
Life insurance is a valuable tool for many because it protects your loved ones. If you pass away unexpectedly while the policy is outstanding, your beneficiaries receive a significant death benefit to replace your income, pay off your debts, and create a safety net for themselves.
It’s never too early for you to get life insurance. The earlier you secure a policy, the lower your premiums will be. And in the case of permanent life insurance, you’ll also have more time to build wealth through the cash value growth component. Here are two types of life insurance policies to consider:
Term life insurance
Term life insurance is an affordable policy that covers you for a fixed period. You can typically choose term lengths of 10 to 30 years, but keep in mind that policies with longer term lengths charge higher premiums. When coverage expires, you must get a new policy or renew your current one if you have a renewal rider. You can even get term life insurance with no medical exam if you want to skip the exam. This type of no medical exam life insurance can help you get inexpensive coverage fast — sometimes within 24 hours.
Permanent life insurance
Permanent life insurance charges higher premiums but covers you for a lifetime. It also contains a cash value growth component that can help you build wealth. Part of each premium you pay goes into the cash value, which grows tax-deferred at a specified rate depending on the insurer and policy type. You can withdraw from or borrow against your cash value once it grows to a certain size. You will also receive the full amount minus surrender charges if you surrender the policy.
4. Create a budget and review your spending
Now’s a good time to create a budget or update yours if you have one already. Your budget helps you live within your means to avoid debt and save money. It also helps you track your spending and cut back on unnecessary expenses. For instance, you might discover a few unused subscriptions or streaming services. Canceling these puts money back into your pocket each month to save or spend on things you need.
The bottom line
Now that it’s 2023, it’s time to start improving your finances. Devise a plan to pay off your debt with the debt snowball or avalanche method, then review your progress toward your financial goals. Additionally, consider investing in a life insurance policy and creating a budget so you can track your spending and look for ways to save. Take these steps now, and you’ll finish off the year financially stronger.