As the new year dawns, you’re getting into some good habits. Your meditation app is getting quite a workout — and speaking of workouts, you’re enjoying your daily walks. The next piece of your new year improvement plan entails getting your finances healthy — and to do that, you’ll need to check on three simple but powerful numbers.
Though you may fear that getting financially healthy requires a decidedly un-Zen deep dive into reams of documents, take a breath. According to Austin Kilgore, an analyst at the Achieve Center for Consumer Insights — the think tank at the digital personal finance company Achieve — focusing on just three numbers can bring clarity and momentum to your finances in the new year.
Freely acknowledging that assessing your total debt can be “a tough pill to swallow, especially if you got a little carried away with holiday spending,” Kilgore still insists that having a clear picture is nonnegotiable if you want to move forward.
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“Start by listing all of your accounts and how much you owe on each,” he said. “In addition to credit cards, personal loans, student loans, mortgages and auto finance accounts, don’t forget to include buy now, pay later loans and any past-due balances on utility, cellphone or other bills.”
To better understand what you are dealing with, organize the list into two categories: long-term debts, such as mortgages and student loans, and short-term debts, like credit cards or BNPL balances.
“Even if you’re not ready to build a comprehensive household budget, having an honest and accurate picture of your existing financial obligations will help inform your spending and saving habits,” Kilgore said.
He added that your personal goals and level of debt can help determine the best course of action, whether that’s a debt consolidation loan or a credit card balance transfer. In more severe cases, he said, it may be time to consider credit counseling, debt relief or even bankruptcy.
The beginning of a new year is a natural moment for self-reflection, and Kilgore says your paycheck deserves the same attention. January is typically when changes to health insurance, pretax spending accounts and other employer benefits take effect, which makes it an ideal time to review payroll deductions.
“The earlier you can adjust how much you set aside for income taxes and retirement savings, the less of an impact it will have on your take-home pay,” he said. “If you and your spouse both work, the IRS has a helpful online tool to ensure both of you are withholding the correct amount of tax, which can help avoid surprises during tax season.”
He also encourages checking the balance on your flexible spending accounts, or FSAs. Many plans allow a grace period at the start of the year to use funds left over from the prior year.
FSAs can cover a wide range of expenses, including medical costs, transportation, parking and child care. In most cases, unused funds are forfeited, making early January a smart time to review balances and plan eligible purchases.
All too often, people only revisit tax withholdings when starting a new job. But as your financial situation changes, whether you’re focused on paying down debt or celebrating a raise, it’s worth reassessing.
“When it comes to paycheck deductions, it’s important to maximize retirement savings so your money has as long as possible to work for you and so you can take advantage of any employer match,” Kilgore said. “I recommend people aim for equilibrium — withholding enough to avoid owing when they file their annual return, but not so much that they receive a huge refund.”
Unless your credit score is perfect, there’s a good chance you can improve it. Because credit scores and reports are key tools lenders use to assess creditworthiness, Kilgore recommends checking your credit score early in the year.
You can use a resource such as AnnualCreditReport.com to review your credit report, look for errors, and gain insight into factors contributing to your score, such as payment history and credit utilization.
“For most people, checking your credit report every week is likely overkill, unless you’re a recent victim of identity theft or other financial fraud,” Kilgore said. “And remember, your credit score is a means to an end. While it informs your financial situation, it doesn’t define it.”
You don’t have to go it alone on your financial improvement journey. Kilgore points to digital tools such as the Achieve MoLO (Money Left Over) and Achieve GOOD (Get Out Of Debt) apps, while noting that the best tools are the ones that match your experience level and goals.
Above all, he emphasizes that improvement is a process. It’s about learning — not getting everything right on the first attempt.
“Aim for progress, not perfection,” he said. “Taking incremental, positive steps toward meeting your goals builds momentum and is less discouraging when you inevitably encounter an unexpected setback. Don’t be afraid to revisit and adjust your financial goals as your circumstances and priorities change.”
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This article originally appeared on GOBankingRates.com: The 3 Numbers Every American Should Check Before January 15
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