Jan 02, 2024

Financial New Year’s Resolutions: 5 Ideas That Might Actually Pay Off

Hey — drop that kale! 

It can be tempting to tie your New Year’s resolution to physical fitness or nutrition. And sure, those can be totally valid.

But what about your financial health? What about a resolution that could literally pay off?

Whether you need to finally build that budget or hope to become a homeowner in 2024, consider a few financial New Year’s resolutions.

Let’s take a look at five different options that might get you the most bang for your buck.

Build a Budget

Starting from scratch? Building a solid budget is a great jumping-off point. That’s because a thoughtful, reasonable budget can be the primary building block for all your other financial goals. Like, maybe one day purchasing a home or remodeling that kitchen.

So, if you resolve to budget better, start with income. Between job turnover, layoffs, and raises, quite a few of us saw changes in pay last year. Sit down and tally up just how much you’re bringing home. Include any side hustles, bonuses, or raises. And don’t forget to factor in taxes, either.

Next, we’ll need to take a look at your spending habits. Create a master list of all household expenses. This should include recurring monthly payments such as your rent or mortgage payments, loan payments, credit card payments, and any other day-to-day expenses. Think: groceries, streaming subscriptions, eating out and entertainment, car insurance, and so on.

Once you have a clearer picture of just what’s coming in and going out, it’s time to set some financial goals. What would you like your budget to do for you? Is the goal to save up a down payment? Or do you want to pay your mortgage loan off entirely? Whatever the case may be, work to build your budget around your unique financial goals. This will help clarify where extra funds should go, whether you may need to cut back or add another income stream, and so on.

You’re not done quite yet though! As the year goes on, you’ll need to maintain and adjust your budget as needed. Income, expenses, and goals are all variable. So, commit to adapting when necessary.

Bump Up That Credit Score

Is your credit score receiving the attention it deserves? This three-digit number can help dictate which loans you could qualify for, the mortgage rate you might receive, and even your potential loan amount. In other words, it can be pretty darn important. Especially if you plan to borrow money in the near future. 

Start by checking your current credit score. This will clue you into just how much work you’ll need to do. 

Typically, credit score ranges are from 300 to 850 and are classified as follows:

  • 629 or below: poorer credit
  • 630 to 689: fair credit
  • 690 to 719: good credit
  • 720 or higher: excellent credit 

The exact number you may need will depend on the home loan program, the loan amount, the loan purpose, and your overall financial situation. But, in general, the higher your credit score the better.

To help improve your credit, it may be a good idea to start by ensuring all bills are paid on time. If you struggle with this, scheduling autopay could be a game-changer. 

You’ll also want to keep your credit utilization rate as low as possible. Depending on the loan program you may need a credit utilization rate of 30% or less.  This would mean you never have used more than 30% of the total credit available to you. To illustrate, if you have one credit card with a limit of $6,000 and another with a limit of $4,000, you have $10,000 in total available credit. In order to have a 30% credit utilization rate you would need to have no more than $3,000 of total outstanding balance between these two cards at the time of loan application.

Credit age also can have an impact, so it may be a good idea to keep older accounts open, if possible. You may also want to try and avoid applying for newer lines of credit all at once and at the same time as you apply for a mortgage loan. In other words, don’t apply for a new credit card and an auto loan all in the same month.

Finally, keep in mind that large increases in your credit score usually don’t happen overnight. When it comes to this resolution, patience may be the key.

Save for a Downpayment

If you’re planning to buy a home any time soon, a down payment is probably on your mind. That 20% figure that always comes up, though? It's a myth. The total amount needed will depend on your local market, loan type, and financial goals. But, at the end of the day, anything may help. 

  • To prioritize savings this year, you might want to:
  • Build or fine-tune a budget. You’ll need to know just how much is coming in and going out.
  • Cut down on expenses. Commit to eating in, cancel that unused subscription service, — or a classic — brew your coffee at home.
  • Increase income. Maybe sell some stuff on Facebook Marketplace or pick up a side hustle.
  • Maximize your savings. You can make the most of your money through earned interest with a high-yield savings account, a brokerage investment account, or similar.
  • Save any extra cash. Birthday checks, tax returns, the $50 you found in last year’s jacket pocket. 

It likely won’t be easy, and it probably won’t be quick or painless. But it may be worth it!

Buy a Home

Are you ready to become a homeowner this year?

The mortgage process can be long and complicated, so you might want to consult a pro sooner rather than later.

In general, the beginning steps of the mortgage process may include:

  • Checking your credit score. See where you’re at and, if necessary, work to make any improvements.
  • Determining how much you can afford. A mortgage professional can help you build a budget based on your goals, income, and other outstanding debts.
  • Making a down payment plan. Determine how much you’ll need, set savings goals, and create a timeline.
  • Determining what you need versus what you want in a home. Make a list of non-negotiables and a list of aspects that would be nice to have, but you’d be willing to leverage for must-haves.
  • Researching and visiting neighborhoods. Use data like school systems, public transportation, and cost of living. Then, visit in person to get a real feel.
  • Gathering all the necessary documents. This might include income documentation, proof of assets, personal documents, pay stubs, tax returns, bank statements, IDs, previous addresses, and social security numbers.
  • Building your homebuying team. Interview a few different real estate agents and mortgage professionals to find the right fit.
  • Getting pre-qualified. A loan originator can tell you just how much you’re pre-qualified for.
  • Shopping around. Work with your agent to find homes that meet your priorities and fall within your price range.
  • Making an offer. This is your “bid” to the seller. Once they accept, you’ll start the closing process!
  • Tying up any loose ends. Review and execute all lending documents, secure insurance, do a final walk-through, complete any required payments, and transfer ownership subject to a mortgage or deed of trust.

It might seem like a lot on its face. But remember, you have a whole year! And there are plenty of real estate and mortgage pros out there who are more than ready to help.

Make an Extra Mortgage Payment (Or two)

If you’re already a homeowner, you might resolve to pay more on your mortgage loan. You could overpay by just a bit each month or go with one or more lump sum payments.

Either way, it’ll likely help your bottom line. That’s because paying extra can drive down the total amount paid over the life of the loan.

When you make an extra mortgage payment, you likely will want to request it go toward your principal.  Otherwise, it will just be applied as a future monthly payment which will likely have less benefit to you. The lender then makes money by charging interest on your principal.

Principal: The original sum of money borrowed in a loan. In real estate, this is the amount your mortgage loan was “for.
Interest: The monetary charge a borrower pays for the privilege of borrowing funds. With interest payments, assuming you continue to pay your monthly mortgage payment, the lender will eventually end up with significantly more money than they originally lent out. There’s their incentive to give you a mortgage loan.

When you lower your principal, the total remaining balance you owe goes down. But that’s not all! The total interest paid over the life of the loan also likely goes down because it’s calculated based on that reduced principal amount. Talk about a win-win.

You likely want to make sure the extra payment is applied to your principal. You should also confirm that there aren’t any prepayment penalties, too. You’ll want to avoid those pesky fees whenever possible.

So, to get in on these savings, decide how and when you’ll contribute more to your mortgage loan. Maybe you can find an extra $100 per month in your budget. Or maybe you’ll dip into your savings for a one-time payment at the end of the calendar year. Either way, this resolution has the potential to pay off big time.

Financial New Year’s Resolutions That Really Pay Off

So, what are we thinking? Will you save big or pay down debt in 2024?

While you don’t have to write the gym off entirely, don’t forget your financial health. With a little introspection, planning, and commitment, you may be able to achieve your financial New Year’s resolutions this year.

And don’t worry. We’ll be here to help every step of the way!

* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.