Here's a quick mental exercise: Can you remember where you were, financially speaking, exactly one year ago — and where you hoped to be today? Is the progress you made over the past 12 months what you wanted? What could you have done differently?
The reason this is so important is because it challenges us to think about where we've been, where we're headed and how to manage things within our control.
Inflation, market returns and interest rates can materially impact your finances. Other things — such as managing your budget, improving your employability and skill set, and rebalancing your portfolio and financial plan to adequately meet your financial environment — also play a role.
If you're ready for a new year full of financial progress, you can start by taking note of what you've done right over the past year — and how your actions and the overall economic climate both contributed to your results.
Wages and inflation
Start with your savings: Did you save as much as you'd hoped? While financial experts are quick to suggest you should always set aside more, it's not necessarily that simple.
For example, inflation can outpace wage growth, making it harder to save on the same income. Of course, your personal situation may differ, yet it's always important to remember the impact of inflation on your wages, budget, and savings.
More from Invest in You:
Applu power of positive thinking to make more money
Hope to get rich in 2020 stock market?
Crush New Year's financial resolutions by embracing laziness
So, what can you do this year to improve? Here's an idea: If you've already got a successful savings method, keep doing what you're doing, increasing your savings by at least half from any raises or bonuses you got this year. That will ensure your nest egg grows over time, ensuring growth even when the economy eventually cools.
And if you didn't get a raise? Ask for one. In an expanding economy, good work is more likely to be rewarded. Build a case for your increase that draws both on your contributions to the business and the improving economic environment.
If your savings didn't keep pace, here are two important suggestions: First, increase your total savings by at least the amount of any raise and other extra compensation — such as bonuses — that you received last year. Two easy ways to do that are to increase the automatic contributions to your 401(k) plan or to set-up automatic transfers to your investment account. This will ensure that the increase in your savings rate outpaces inflation, so that you can experience real growth over time.
Don't forget debt, investments
Though interest rates have been declining, rates on credit cards are near an all-time high. That makes repaying high-interest credit card debt even harder for some new borrowers, while those with less-than-stellar credit or repayment histories get hit with higher rates.
Negotiating lower interest rates due to a record of on-time payments should be a top priority. The other should be finding ways to accelerate debt repayment.
You should also set credit cards, mortgage, and other debt on auto-pay, opting for repayment options that call for two biweekly, rather than monthly payments, if possible. This will result in total of about one extra monthly payment per year. It's likely you'll hardly notice the difference.
And don't forget to apply the concept of automation to your investments. Apps such as Acorns can round up your purchases and invest the spare change. Some credit cards, such as Bank of America's Cash Rewards, allow you to deposit your cash back rewards directly into your investment account.
Whatever you choose, find ways to automate your actions to more easily reach your goals in 2020. Remember, however, to compare rewards against interest rates: If you carry a card balance, it's important to prioritize choosing a card with the lowest rates possible. Cash back and rewards are wonderful perks — but generally best enjoyed when you pay your debt in full each month, and have a manageable interest rate.
The single best thing you can do for your pocketbook in 2020 is to take control of your finances wherever and whenever possible. While budgeting, savings and debt repayment are always critical and active steps you should be taking, don't forget to include the impact of inflation and interest rates into your strategy. It can make the difference between real progress and just staying afloat.
SIGN UP: Money 101 is an 8-week learning course to financial freedom, delivered weekly to your inbox.
CHECK OUT: Here's what kind of mortgage rate you'll get depending on your credit score via Grow with Acorns+CNBC.
Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.
