As another year winds down, it’s common to look back at what you’ve accomplished in the last 365 days. Did you meet the goals you set out for yourself last year? Did you get married, have children, buy a home, start a business, or make a career change?
While just about everyone reflects over the changes they’ve experienced, many are also resolving to make changes in the New Year, especially in regards to finances.
Fast-forwarding past the Christmas rush and into the New Year, here are some must-dos to keep your finances in ship-shape for another year.
1. Establish financial goals
What do you want to accomplish this year? Are you planning to buy a home, do you want to pay off student loan debt, take a vacation, or start your own business? The first step of financial planning is to figure out where you are, then where you want to be.
If you need to pay off your student loans, ask yourself when and how. When do you want to have them paid off by? How can you expect to pay them off? Once you have determined your goal, you can then start to develop an actionable plan.
For instance, a payment plan where a fixed amount of your income goes towards your debt could help you to achieve your goal.
Other financial goals could be career-focused, such as finding a better paying job, getting a raise or a promotion, taking courses to learn about business, or starting a business plan. These may also be part of your plan to achieve other goals, such as buying a home, where getting a raise is a key element to accomplishing it.
Once you know what you want out of the next year, financially, you can begin to plan out your roadmap to get there.
2. Reevaluate monthly expenses
How much do you spend on average in one month? If you cannot answer that question, you may want to take a closer look at your bank statements.
The start of the year is a good time to review your monthly subscriptions, plans, and utilities to make sure you are getting what you need for a reasonable cost and to evaluate if there is anything you can trim from your monthly expense sheet.
For instance, if you hardly use cable but it’s included with your internet bundle, think about downgrading to an internet-only plan, where you can utilize other services, such as Netflix, for a fraction of your cable price.
Other expenses to review include:
- Food costs
- Automobile, gas, or transportation costs
- Memberships, such as the gym
If you find that an unreasonable amount of your monthly earnings are going towards heat or electricity, brainstorm creative ways to lower your bills, whether that is through exploring alternate energy providers, purchasing a smart thermostat (like Nest), or simply installing motion-sensor lights, there are ways you can lower monthly costs without drastically impacting your lifestyle.
3. Set up a spending budget
You may have started last year off in the hopes of setting a budget and sticking to it. Most of us do, but then we experience situations that cause us to forget, override, or extend our budgets.
When you review your monthly expenses, you will forge an idea of approximately how much you spend per month on your bills and what you can afford to cut out or cut down on.
From there, you should be able to establish a flexible budget, which adjusts according to your needs and seasonality. First determine your normal budget for a typical month by adding up the costs for groceries, rent/mortgage, child care, utilities, debts, etc., and subtracting that number from your total income. Then anticipate months that will be higher on average. Think: your July vacation to Europe, a new furnace, December holiday shopping, etc.
Aim to spend within or under your budget each month. Consistently sticking to your budget, or coming in under, will help with the next must-do. Oppositely, if you are continually spending beyond what you set out as a budget each month, it is time to reevaluate your expenses.
4. Start saving
A budget will put you into a position to begin saving some coin each month and even help to contribute to your financial goals.
The best way to save is up to you. Whether you prefer to set up a portion of your pay check to go to a savings account each pay day, or you put away the difference in your budget from what you earn and what you spent, there are various saving plans available to you.
If you are saving up for something specific, set up a savings account for that purpose, such as a down payment on a home. Open a savings account for this and deposit money each month. Same goes for a retirement account or a college fund. Opt for an account that provides you with interest, so you can earn while you are saving.
Savings should be a priority for you in the New Year, even if it is just to start an emergency fund. After a while, regularly putting money aside will become a habit that you don’t want to break. Even starting with a small amount each month will add up over time.
5. Develop smart money habits
Think about what your goals are for the next few years and what it takes to achieve them. If you start managing your finances by taking a present role in how you earn, spend, and save, you will be more likely to spend wisely rather than impulsively.
Consider adopting these smart money habits:
- Think before you buy. Give yourself time before making big purchases to avoid buyer’s remorse.
- Avoid eating out at restaurants.
- Pay attention to bank statements, charges, and bills.
- Check in with your budget each month.
- Automate savings.
- Negotiate prices on purchases such as a new/used vehicle, electronics, furniture, insurance, and more.
- Pay bills at the same time every month or set up automatic withdrawals if you have trouble remembering to make payments.
Other ways to take charge of your financial life is to educate yourself. Your bank might be a good resource for different savings accounts, the best credit card and interest rate, or how you can invest your earnings to reach your long-term financial goals, such as retirement.
Finance for the New Year
As another year comes to a close, it’s the hope that we are all another year wiser when it comes to our finances. While it may be easy to fall back into bad habits from the previous year without realizing it, regaining control of your finances will have a positive ripple effect on not only your bank account, but also on the rest of your life because you will have a financial foundation in place where achieving your goals becomes a lot more attainable.
What are your financial goals for the New Year?