Have You Made Your 2024 New Year’s Financial Resolutions?

The start of a new year comes with it the best of intentions. You may start a new gym membership, plan to apply for a new job or start a new diet regime, however have you thought about your 2024 new year’s financial resolutions?

Financial resolutions are a great way to make money changes that will affect the rest of your life. For example, you may want to start saving for that overseas trip, set up an emergency fund or plan to reduce your overall tax bill. In order for these things to happen, you need to put your financial plans into action.

Here are some new year’s resolutions to kick off 2024 and how you can go about achieving them.

2024 Financial Resolution #1 – save money

The top of most people’s financial resolutions is to save more money. You may want to add these to your 2024 new year’s financial resolutions:

Pay down high-interest debt. If you carry credit card or personal loan balances with high interest rates, focus on paying those down as quickly as possible. The less interest you pay each month, the more money you’ll save.

Reduce spending on discretionary items. Look for ways to cut back your spending on things like dining out, entertainment, and shopping. Small reductions across many areas can really add up over time.

Live below your means. Avoid lifestyle inflation as your income increases by continuing to live like you did at a lower salary. Put extra money toward savings and debt repayment instead of increasing spending.

Refinance high-interest loans. If you have loans like a mortgage with interest rates above current market rates, look into refinancing for potential savings.

Comparison shop for insurance. Review your home, car, and health insurance policies regularly to make sure you still have the best rates and coverage for your needs.

2024 Financial Resolution #2 – improve your credit score

Pay all bills on time. Payment history makes up the largest percentage of your credit score. Pay all credit card bills, loans, utilities, and other obligations on time each month. Set up automatic payments if needed. Paying late can severely damage your score.

Check for errors on credit reports. The three major credit reporting agencies in Australia are Equifax, Illion, and Experian. Pull your reports from each one annually to check for any errors that may be hurting your score. Dispute any errors with the agency.

Space out applications. Only apply for new credit when truly needed to avoid multiple hard inquiries, which can temporarily lower your score. Too many applications in a short period are a red flag to lenders.

Stay patient. Building and maintaining good credit takes time. Check your reports regularly and continue responsible credit habits over 6-12 months to see steady score improvements.


2024 Financial Resolution #3 – organize your side hustle to pay less tax

Many people start or plan to start a side hustle to bring in a little extra cash, but unless you manage your finances around side hustles, they may cost you more than you might think they might. Here are some ways to pay less tax if your side hustle is hustling:

Register as a sole trader business with the Australian Taxation Office (ATO). This allows you to claim deductions for work-related expenses that reduce your taxable income.

Keep detailed records and receipts for all business expenses like materials, equipment, travel, internet/phone costs, etc. Claiming these deductions requires proof.

Speak to an accountant about the best structure – sole trader, company or trust – based on your specific situation and future goals. They can help maximize deductions and minimize tax.

Consider salary sacrificing to superannuation if your side hustle income is high enough. Up to $27,500 can be contributed pre-tax each year.

Pay yourself a wage from your business instead of taking all profits. This splits income and allows deductions for wages as a business expense.

Invest business profits back into the business for growth where possible rather than paying it all out as income.

2024 Financial Resolution #4 – work out if your income is a PSI

A personal services income, or PSI, refers to earnings that are primarily generated through an individual utilizing their own personal skills and efforts. To be considered a PSI, more than 50% of the income must be derived from an individual’s labour alone.

If you’re earning an income through the provision of personal services as an independent contractor or sole trader, it’s important to determine if you meet the definition of a personal services business. Classifying correctly as a personal services business will indicate whether the special PSI tax rules apply to your earnings.

The PSI tax rules influence both how you must report your income to the Australian Taxation Office (ATO), as well as impacting which deductions you are entitled to claim. Depending on your circumstances and how your business is structured, the PSI rules may require that income be treated as personal income rather than business income from a sole trader or company. Looking at how your income is classed is a great 2024 new year’s financial resolutions.

2024 Financial Resolution #5 – plan to pay less tax

This resolution is a no-brainer. Everyone wants to pay less tax, but less people plan to reduce that bill. Instead of waiting until tax time to reduce your tax bill, year-long planning may yield better results. Here are some measurable ways to reduce your tax:

Contribute to superannuation. Making concessional (pre-tax) contributions up to the annual cap of $27,500 can lower your taxable income. Tax is capped at 15%, which is way lower than the lowest marginal rate.

Claim deductions and offsets. Keep records of work-related expenses, donations, interest payments, and more to deduct from your taxable income. Also look into low and middle-income tax offsets you may be eligible for.

Salary sacrifice certain benefits. Sacrificing pay for additional super, a new laptop, or phone and internet bills can reduce taxable income dollar-for-dollar.

Invest for the long term. Capital gains on assets held longer than 12 months are discounted by 50% at tax time. Investing in shares, property, or your own business can create tax-effective wealth growth.

Structure a small business properly. Registering a company or trust allows more deductions plus flexibility with salary versus dividends. Seek tax advice to maximize deductions and minimize personal tax liability.

Use a tax professional. An accountant can help you take advantage of all available deductions and plan the most tax-effective strategies for your situation each financial year such as income splitting or averaging.

Stay on top of record keeping. You can’t claim what you can’t prove.Keep receipts and invoices organized to back up claims. Records also allow amending returns if a deduction was missed initially.

2024 Financial Resolution #6 – stick to your new resolutions

Resolutions are really goals. To achieve any goal, you’ll need to set up a plan and budget to make sure you have the money to reach your desires. So, how do you reach those financial goals?

Setting specific, measurable goals is important to staying on track with financial resolutions. Rather than vague goals, get concrete by setting targets such as saving $100 per month or paying off a credit card balance by a certain date. These kinds of goals are easier to track your progress towards.

Creating a detailed monthly budget that accounts for your entire financial picture is also important. By budgeting your income, expenses, and savings goals, you can regularly review how you’re doing and make adjustments if needed.

Automating savings makes it effortless to save money automatically. By setting up direct transfers from your checking account to savings or investment accounts each payday, you’re “paying yourself first” without having to think about it.

Tracking your spending, whether through a notebook or app, provides visibility into where your money is actually going each month. Seeing your spending habits in black and white helps curb unnecessary expenses.

Celebrating small wins along the way provides motivation to keep going. Note when you hit mini-milestones so you feel a sense of accomplishment that spurs you forward.

Getting an accountability partner who is also working towards financial goals provides motivation and advice when challenges arise from checking in with each other.

What if your life changes?

Life changes may require adjusting goals some months if savings needs to be less, but don’t abandon your resolutions – make adjustments to still make progress, then get back on track. Most importantly, be patient as big financial changes take time. Focus on consistency through tracking progress rather than perfection.

Making and sticking to a financial plan for the entire year has much greater potential for success than a single New Year’s resolution alone. When solid plans are made and tracked over 12 months, it allows for adjusting savings and spending habits gradually over time. This process of continuous improvement is much more sustainable than trying to overhaul everything at once.

The Australian Government has a NewAccess guided self-help mental health coaching program for small business owners should you need a little extra help. It’s entirely free and confidential. Click here to access the program.

Setting financial goals and budgets as a year-long commitment reviewed monthly keeps you focused on progress toward objectives even when your motivation may flag after the new year excitement wears off. If you need a little extra help turning a resolution into plans and achievable goals, an ITP Tax Accountant will help discovering your 2024 new year’s financial resolutions.