How to set financial goals for the new year

The new year is a time of change and reinvention, a motivating time to set new goals. The promise of opportunities for the coming months can mean a time to take stock in your personal finances. What are your goals for the coming new year, and how can you make healthy decisions in the years to come?

Examine your current budget

It’s a good habit to revisit your budget periodically, but the start of a year is an opportune time to do so. Examine your monthly income, your recurring bills and subscriptions, and your overall expenses. Can you afford to cut back on anything, such as a lower-tier cell phone plan or a refinance of your mortgage? Or are you doing well enough to, say, add a streaming service to your bills?

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Credit card and bank statements are your best bet for determining where your spending is going. They will break down your monthly spending by category, and from there you can track changes in spending: if you’re going out to eat more than usual, for example, you can dial that expense category back and budget more toward home cooking.

Once you’ve determined where your expenses are going, you can then decide to put more money towards a 401(k), invest more aggressively in the stock market,or build up toward your savings. Those are just some of the options that you can accomplish after a thorough look at your expenses.

Determine major expenses down the line

Do you need to save for home improvements? Are you planning to buy a new car? Is your child finally going off to college? These major expenses don’t necessarily happen overnight: they can be anticipated, and therefore become a part of your monthly budget. Depending on your priorities, you can determine how much to set aside for these expenses: whether you want to save aggressively to pay off a major expense, or to take your time if it isn’t urgent.

Set aside money for the unexpected

Part of having a savings is being able to prepare for sudden illness or hospitalization, layoffs, natural disasters, and other potentially unfortunate and costly events. It is vital to have an emergency fund, and a plan to be able to save for it. Over half of Americans are unable to cover a $1,000 emergency expense, and they run the risk of incurring debt or credit card fees that could be more difficult and expensive to pay off. By setting money aside in an emergency savings fund, you can avoid what could become an even larger financial catastrophe.

Limit your credit card spending

Resist the temptation to open new credit cards, which can hurt your credit score in the long run. Instead, focus on the accounts you currently have open: start with accounts with the highest interest rate, and work towards paying those off first. This will save you money in the long run by reducing high interest fees. Consolidating your debt is also a way to manage your expenses, such as through a balance transfer. And taking advantage of 0% APR periods can help you avoid spending more, especially if you’re able to clear your debts before this time ends (usually 12 to 18 months).

Set aside money for something fun

Just because you plan to be financially responsible doesn’t mean you can’t treat yourself. The past few years have taken a toll on our collective mental health, and as we begin a new year with optimism, we can afford to plan a vacation, a once-in-a-lifetime experience, or a gift for yourself or a loved one. With the right amount of planning, consider this another financial goal to work toward—instead of an impulsive decision that might cost more than you expect.

Reassessing your personal finances can lead to new opportunities. No matter what your goals are, Microsoft’s budgeting advice can help.