If you’re like me and the rest of America, 2016 probably made you say “I can’t even right now…” more times than you’d like to count.
But a new year is here and ’tis the season for making resolutions. Whether they are financial ones, a newly spun effort to lose weight, or maybe just plans to be the person your dog thinks you are, they usually start with an “I will” or “I will not”. And for good reason…a new year feels like a new start, so why not give ourselves some new rules to break out of whatever rut we might be in!
I want to make the case for some financial resolutions that can help you make 2017 your best year yet. Whatever your personal finance situation or level of financial knowledge might be, examining your strategies at least once a year, especially at the onset of it, is always a good idea.
Financial resolution #1 – Get debt-free
This is perhaps the most important resolution that you make this year if you have debt. Here we are talking credit card debt, student loans, personal loans, auto loans, and medical debt. The reason why this is number one is that the cost of this debt has the potential to cost you way more than the initial loan because of the interest that goes along with it.
For credit card and other debts with high interest rates, take an inventory of the dollar amounts you owe and then the interest rates that go along with each. There are several tactics to paying down credit card and other personal debt, but the one I think makes the most sense is to choose the ones with the highest interest rates and pay them down first. For medical bills, check them thoroughly for error and consider a call to your insurance company that walks you through all the charges. When all else fails, you can always try to negotiate.
Financial resolution #2 – Take an inventory
Most bills are paid monthly, so it makes sense to get a snapshot of what your income and expenses are on a monthly basis. I wrote another post that walks you through how to take this inventory in greater detail and walks through ideas for increasing your discretionary income. Taking an inventory creates awareness by getting to a level of detail where you see what you actually earn and spend versus what you think you earn and spend. Since some months have unexpected expenses, it might be a good idea to do the math for a time-frame of three to six months and then take an average.
For some us under the age of 40 our data gathering will likely all be done online, but for the rest of us this means getting out bank statements and bills. Not a fun task, but one that can shed light on what your other financial “resolutions” might need to be for 2017 and beyond.
My final point on the financial inventory – I think it’s so important to do it because a lot can change in a year on both the income and expense fronts. As far as income goes, most businesses adjust salaries based on CPI metrics and give raises to their employees, so accounting for the money you’re making now that you weren’t a year ago is important. It’s easy to spend more money when you’ve got more money in your bank account (at least I believe this much is true, from personal experience), so acknowledging this aspect of your finances is crucial if you want to direct more money toward savings. On the expense front – maybe you bought a car, joined a gym, sold your house, bought a house, or just made a lifestyle change…all of these have an impact on your monthly expenses and your cash flow that you need to take into account. Make sure that these changes are all still ones that you can afford given your current income and savings goals.
Financial resolution #3 – Talk it over
After you’ve done the income-expense inventory, it’s important to discuss the results of it with your spouse or significant other. Like a therapy session for your finances, devote time to talking about it in a non-critical, constructive way. This will help you figure out if changes need to be made and make you feel like you’re on the same team.
Many times overspending where finances are intertwined is the result of a lack of awareness. Discussing goals and how your earning and spending habits fit into them overall is a good way to ensure you’re on your way to achieving them. If you can’t seem to agree on changes that you think need to be made or just feel in over your head, consider jointly consulting a therapist or counselor to help mediate the discussion.
Financial resolution #4 – Set goals
Based on the outcome of the previous three resolutions, you probably start to get an idea of where you can do better financially and where you don’t need to make changes. After you’ve figured out what changes need to be made, start setting realistic spending and saving resolutions.
A word of advice here would be not to focus on extreme, all-or-nothing changes. For example, I know many people who take an inventory realize that they spend a lot of money eating out. Some know they have the time and ability to cook for themselves but don’t, others simply enjoy the experience of eating out. Instead of saying “I’m going to quit eating out”, it seems to work better if they make resolutions to instead only eat out once or twice a week and try to arm themselves for foodie bliss inside their own kitchen. If you are questioning whether you eat out too much, this website came up with a calculator to look at how your dining out habits compare to the rest of America.
Another example that I think applies to nearly the entire population of females (myself included): clothes-shopping. Be it retail, vintage, thrift store, or a local favorite, shopping is undeniably fun. It’s hard to just quit buying clothes, though, so putting in a place a “shopping ban” for a period of a few months or a year can work better than quitting cold-turkey. From those I know who have done something like this, it also serves as an eye-opening experience that may leave you with a different opinion of the word “need” that benefits your wallet beyond the time-frame your shopping ban.
Financial resolution #5 – Check-in
Many businesses use status reports and meetings to stay up-to-date on what’s happening with projects in their organization. I would suggest something similar. Set aside time on your calendar for check-ins for your financial goals and initiatives and use it to revisit whether you’re achieving what you resolved to do or whether you need to realign your spending and saving in the future to get back on track to achieving your goal. Don’t underestimate the power of 15 minutes spent with your finances on the overall success of your goals. Checking-in allows you to make small changes when necessary instead of distancing yourself from your goals which requires bigger changes later on.
Apps have come a long way in the last five or ten years. I love them because they provide more automated tracking of your income and expenses but can also help you set goals and alert you when you’re not on track to get to those goals. Personal Capital focuses a lot on investing while Mint focuses more on budgeting. CountAbout and Moneydance make it easy to see all of your transactions in one place while PowerWallet goes a step further in providing expense analysis that can help you build a budget if you decide that’s what works for you.
Go forth and achieve!
New year’s resolutions are a great time to stop and think about what we want to achieve. A new year sometimes allows us to see that better version of ourselves (and our finances!) that we know are possible. Rather than just create a vague resolution to do something, I hope that my five little resolutions provide you with a clearer path toward your financial goals. You know you can do it!
2017, we are coming for you!
#personalfinance #resolutions #2017isyouryear #money