As the ball drops and we ring in a brand new year, I’m sure many of us will be making New Year’s resolutions with great optimism. Well, why not make some new year’s money resolutions, too? Doing so could benefit your long-term financial health. In this instalment of Show Me the Money, I’ll suggest a few money resolutions you can make.
Resolution one: save more. Think about your spending habits and find things you can cut back on. For instance, I know someone who would buy a new pair of sneakers each month. Individually, each pair may not cost a lot, but collectively, it’s thousands of dollars each year. And honestly, how many pairs of shoes does a person really need?
If you’ve been tracking your expenses regularly, reviewing them is a great way to find excesses that you can trim. Furthermore, with interest rates likely to rise in 2022, saving will become even more rewarding.
Resolution two: reduce debt. If you are frequently paying only the minimum sums on your credit-card bills, you need to make some changes. This is because paying only the minimum sums on your statement does not reduce the amount you owe. You are only paying interest, but the interest will accumulate faster than you can pay it off. Before you know it, the debt has spiralled out of control.
Credit-card interest rates are easily the highest you can pay on anything, ranging from 20 to 30 percent per annum, compounded daily. Yes, you read that right: daily. If you don’t already know how credit-card interest and payments work, do yourself a favour and find out before you charge anything else to your card.
Resolution three: learn to invest, and take action. Investing can be scary because it involves taking risks with your hard-earned money. However, starting early gives you a great advantage, and smooths out the inevitable bumps along the way.
For example, if you start investing $100 a month at a 5 percent interest rate from age 20, you will have over $202,000 by the time you turn 65. If you wait until you are 30 to start investing the same amount, at the same interest rate, you will only end up with $113,000 at 65. That is the power of compounding.
I suggest looking into regular investment plans offered by your bank if you don’t have the time or desire to manage your own investments. These plans allow you to start investing with a small sum of money each month, and they are professionally managed.
When thinking about what resolutions to make, remember to think long-term. One day in the future, you will think back to 2022 and thank yourself for it.