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Small Step New Year's Resolutions

January 2017

Barbara O’Neill, Ph.D., CFP®
Extension Specialist in Financial Resource Management
Rutgers Cooperative Extension

Looking for ideas to improve your personal finances during the upcoming year?  Consider the following eight suggestions for your New Year’s resolutions:

  • Commit to Saving Regularly - Small amounts of savings add up. If someone saves $50 per week ($2,600 annually) at ages 25, 35, 45, and 55, he or she will have $431,490, $217,645, $100,109, and $35,507, respectively, at age 65 assuming a 6% average annual return. Pay yourself first.  Before paying bills and other financial obligations, set aside an affordable amount each month in accounts designated for long-range goals and unexpected emergencies. Consider doing a savings challenge to follow a schedule of regular deposits:
  • Take Advantage of Tax-Deferred Investments - Available options include individual retirement accounts (IRAs) and tax-deferred employer retirement plans such as 401(k)s, 403(b)s, and Section 457 plans.  Advantages of employer retirement savings include tax-deferral of investment plan earnings, a federal income tax write-off for the amount deposited, and automatic savings via a worker’s paycheck.
  • Maintain a Low Debt-to-Income Ratio - Monthly consumer debt payments should ideally be 15% or less of monthly take-home pay. Example: $275 of debt payments divided by $2,500 of net pay equals a consumer debt-to-income ratio of 11% (275 divided by 2,500). A consumer debt-to-income ratio of 20% is considered a “danger zone.” It means that one day’s pay out of five is already “spoken for.”
  • Accumulate an Adequate Emergency Fund - Financial experts recommend maintaining a “cash stash” of at least three month’s expenses.  Six months is even better. Keep this money liquid in cash equivalent products such as a bank or credit union savings account, money market mutual fund, or short-term CD. It may take a few months to a year to accumulate an adequate reserve but that’s okay. The most important thing is to get started now and save regularly to accomplish this goal.
  • Develop Your Human Capital - The most familiar way that people invest in human capital is through formal education that leads to a college degree, trade school certificate, or high school diploma.  Other ways to develop human capital include on the job training and experiences, non-credit courses, and self-employment or consulting work that broadens one’s skill set and/or professional network.
  • Take Care of Your Health - Another way of investing in human capital is by spending time (e.g., for physical activity) and money (e.g., for nutritious food) to maintain your health.  The result is often fewer days of sickness, higher productivity at work, a longer life expectancy, and lower health care expenses. As Virgil is reported to have said more than 2,000 years ago, “the greatest wealth is health.”
  • Increase Your Financial Literacy - Knowledge is power.  For example, knowledge of investment principles can prevent costly errors such as panic selling during stock market downturns. Appreciation of compound interest may provide motivation to make monthly deposits to a mutual fund and roll over 401(k) payouts to another tax-deferred plan instead of spending the money and incurring penalties. A good place to start is Rutgers Cooperative Extension’s Money and Investing website:
  • Get a Financial Check-Up - Periodic financial check-ups are as important as a routine physical exam is for your health to identify problems and potential remedies. A helpful self-assessment tool is Rutgers Cooperative Extension’s online Financial Fitness Quiz: Another is the Wise Credit Management Quiz: