Three financial resolutions for 2017

Having a goal at the start of the year can be just what you need to improve your financial situation.

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Want to feel better about your finances in 2017? Start with a New Year’s resolution. Having a goal at the start of the year could be just what you need to improve your financial situation. Fidelity’s 2017 New Year Financial Resolutions Study1 found that 66% of those who were successful in following through with their resolutions said they were now in a better financial situation.

They also feel better. “The mere act of resolving to do better also makes people feel better about their finances, which helps them stay engaged and make progress toward their goals,” says Ken Hevert, senior vice president of retirement at Fidelity. “The start of a New Year is the perfect time to hit pause and review your financial plan. Even if you don’t like making specific New Year’s resolutions, you can still resolve to do better in 2017.”

The Fidelity study found that Americans’ top financial priorities are saving more, paying down debt, and spending less. Keep these pointers in mind as you take aim at turning your 2017 resolutions into reality.

1. Save more.

For an emergency: A good rule of thumb is to have an “emergency fund” of three to six months of living expenses readily available. An emergency, such as an illness or job loss, is bad enough; not being prepared financially will only make things worse.

“Whether it’s a new roof for your home or a health care emergency, the unexpected can throw your finances for a loop,” says Hevert. “In fact, for those whose resolutions fell short in 2016, almost three-quarters said they were derailed by unforeseen expenses. By setting aside an emergency fund, you can create a buffer against the unknown, and avoid using money you’ve saved for other priorities, such as retirement savings.”

When building an emergency fund, it might help to think of it as a monthly bill that you pay until you have reached your goal. Read Viewpoints: "How to save for an emergency."

For your future: It’s important to make the most of your 401(k) during your earning years. In addition to helping you prepare for a comfortable retirement, contributing to a 401(k) or similar workplace retirement plan can lower your current tax bill.

Start by contributing at least enough to earn the company match, if your employer offers one. Think of the match as “free” money—and who couldn’t use some of that? Then go a step further by increasing your contributions whenever you can. If you get a raise or a bonus, direct as much of it as you can into your 401(k), which can also help reduce your current taxable income. If you’re diligent, 401(k) savings can really add up. Say you earn $60,000 a year and contribute 10% to your 401(k). That’s $6,000, or about $115 a week. Then suppose your company adds another $900 in matching contributions. Now you’re up to $6,900 a year, which if continued for 10 years could grow to more than $95,000, assuming a hypothetical return of 7% per year.2

If you don’t have access to a 401(k), you may be eligible to contribute to a traditional or Roth IRA, both of which also offer opportunities for tax-advantaged earnings growth.

Aim to save (including your employer’s contributions) at least 15% of your pre-tax income every year. Read Viewpoints: "How much should I save each year?"

2. Reduce debt.

Pay off high-interest cards: Reducing debt—especially on high-interest credit cards—can take pressure off your monthly budget and free up money to save for important goals. First, tackle the debt that has the highest interest rate by paying more than the monthly minimum. Minimum payments are typically low, which means you are paying mostly interest and will likely need a long time to pay off the balance. So double up on the minimum if you can—or even shoot for paying half of the balance each month.

While you’re paying down debt, avoid adding new charges, and do everything you can to pay at least the minimum on other cards you might have, so you don’t incur fees and penalties. When you have one card paid off, start on the one with the next-highest interest rate, and so on.

Check your credit card statement to see how long it will take you to pay off the balance—and how much it will cost you in interest—if you make only the minimum payment. That number will likely motivate you to pay more than the minimum. Read Viewpoints: "Seven credit card tips."

Look for a lower rate: If you have only one account, try negotiating a lower rate with the credit card company. Another option is to see if you can transfer the balance to an account with a lower interest rate. Transfers typically have a fee of between 2% and 5% of the balance, so keep that in mind and factor it into your planning.

If you have several accounts with balances, you could use a balance transfer to consolidate all your debt into a single, low-interest-rate account. One large debt is easier to manage than several small ones. You’ll have fewer bills to pay each month, and progress will be easier to track month-to-month.

Before you consolidate, read the terms carefully. Be aware that introductory rates may be replaced by much higher rates when they expire. When a new rate kicks in, it is usually applied to your total balance, including the balances that carried over from any interest-free or lower-rate periods. Make sure that your debt is paid off before the new rate goes into effect, if you want to avoid higher costs. Delaying for even a day can be costly.

Finally, if you open a new credit card, make sure you put the other one away, so you cannot run up a balance on it.

3. Spend less.

Know where your money goes: A business wouldn’t operate without a budget, and neither should you. By creating a monthly spending plan, you’ll see clearly how much you need for essentials, such as housing, transportation, food and insurance, and how much you have left over for contingencies and discretionary spending.

But don’t stop there. Keep close track of what you spend on “nice-to-haves,” and you might discover that you have a lot more room to cut back than you thought. Seeing the actual amount you shell out for impulse purchases and small conveniences may be incentive to dial back your indulgences to just once-in-a-while treats.

Reduce fees: A few small changes—such as cutting banking fees and consolidating accounts with one provider—can create cash that you can use to help build your savings. “These moves are simple, but they’re often overlooked,” says Sam McLimans, senior vice president of cash management at Fidelity. “You may think it isn’t worth the trouble to save a little bit here and there. But small savings can add up to big savings pretty quickly.”

The typical household pays a total of $43 in monthly bank and credit card fees, according to a study published by professors from the University of California, Davis, and Dartmouth College. If you switched to institutions that charged no fees and instead invested that $43 a month for the next 20 years, it could grow to more than $22,000, assuming a hypothetical compound annual growth rate of 7%. Read Viewpoints: "Do you really need a bank?"

Get started.

Of course, there’s a big difference between making a resolution and keeping one. To improve your chances of turning your resolutions into reality, stay focused on the rewards, and don’t pressure yourself to tackle everything at once—perhaps schedule an hour a month to check your progress.

Learn more

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1. This study presents the findings of a telephone survey conducted among two national probability samples, consisting of 2,015 adults, 18 years of age and older. Interviewing for this CARAVAN® Survey was completed in October 2016 by ORC International, which is not affiliated with Fidelity Investments. The results of this survey may not be representative of all adults meeting the same criteria as those surveyed for this study.
2. This hypothetical example is for illustrative purposes only and does not represent the performance of any security. The ending values do not reflect taxes, fees or inflation. If they did, amounts would be lower. Earnings and pre-tax contributions are subject to taxes when withdrawn. Distributions before age 59 1/2 may also be subject to a 10% penalty. Contribution amounts are subject to IRS and Plan limits. Systematic investing does not ensure a profit or guarantee against a loss in a declining market. Consider your current and anticipated investment horizon when making an investment decision, as the illustration may not reflect this. The assumed rate of return used in this example is not guaranteed. Investments that have potential for 7% annual rate of return also come with risk of loss.

Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.

Investing involves risk, including risk of loss.

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Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917

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