A New Year often brings lofty goals. I want to get in shape or I want to get that promotion, but how often are our yearly goals about our finances?
In this post, we’re going to talk about some of the things you can do to set yourself up for financial success this year.
Put your credit cards away
For the vast majority of people, credit cards hurt more than they help. If you’re financially responsible and pay off your balance right away, they’re an extraordinary tool. For everyone else, credit cards often come with financial pain.
Don’t close your credit card (more on that in this post, here). Take it/them out of your wallet and delete them from your “payment options” on Amazon and/or any other online retailers you frequently visit.
The easiest way to avoid temptation is to take it away. Avoid using your credit card(s) this year.
Pay yourself first
Before you spend a single dollar, set some money aside for yourself.
What you do with that savings will vary. Everyone should have an emergency fund. Ideally, 3-6 months’ worth of expenses.
At the very least, have $1,000 set aside for emergencies, and then build up from there.
Once the emergency fund is set, start building an account for short-medium term goals. A new car or a down payment, are two examples of short-medium term goals.
Last, but not least, you need to save for retirement. This should be its own line item on your budget (more on that below), but it’s something that requires intentional savings each month.
Your saving methodology, or how you save, deserves it’s own section because often times, we save after we spend.
We need to flip that around. You need to save BEFORE you spend. When you budget (make a spending plan), there are several line items.
What you pay, in order, should be necessities, savings, and then excess spending.
Additionally, your savings rate shouldn’t stay stagnant. It should constantly be adjusted. At the very least, on an annual basis.
Run the numbers. Do the math and figure out if you can spare another percentage of your salary, or another $5/month.
Invest in yourself
There’s no better way to improve your year than to improve yourself!
Put healthy habits into practice. Read, exercise, meditate, hang out with friends, go for a walk. The list is endless.
Some of those activities have compounding benefits. Walking is great exercise and is also meditative.
“An investment in knowledge pays the best interest” – Benjamin Franklin
Audit your spending
Figure out where all of your money is going. I typically look back three months, but Holiday shopping is there, so that will distort your spending a little.
If you can, audit October, November, and December, and remove any item that isn’t normal (i.e. gifts/presents).
Once you have a good grasp on how much you’re spending and where you can develop a budget.
Make a spending plan
My term for budget, as the word “budget” has negative connotations tied to it. Using your spending audit, create a spending plan.
- List your necessary expenses – rent, utilities, groceries, travel, insurance, debt payments, savings
- List discretionary spending – fun money. Give yourself an allowance here, but keep it reasonable.
- Monthly income – What do you bring in each month.
Once you have these items listed (debits and credits, respectively) compare the two. The resulting number should be positive. Make adjustments accordingly.
A financial plan isn’t something that’s set in stone. It’s a living organism that’s constantly changing.
If there’s one thing that’s been proven (time and again) it’s that helping other people makes you feel good. However, the reason for being generous shouldn’t be the dopamine rush that follows, it’s to help someone/something that needs it.
Whether that’s a stranger at the store or a cause that you strongly identify with, do what’s right. Live to serve.
Start saving now! December sneaks up quickly, and before you know it, you’re spending hundreds of dollars on things you didn’t budget for.
Save a little bit each day, week, or month. Whatever you’re comfortable. I encourage you to figure out what you think you’ll need for the Holidays and break it down.
Discern what is manageable for you and put it into practice.