It’s the most wonderful time of the year!
ALSO READ: What are Millennials Doing with Their Money?
It’s the time of year that brings with it the promise of new beginnings and new hopes; the time when millions of Americans make their new year’s resolutions hoping to become healthier, wealthier and wiser.
We know the typical resolutions: lose weight, stick to a new diet, or even get outdoors more. But…what if we turned that motivation towards a different area: your finances.
As 2016 approaches, it might be wise then to consider a different type of resolution: to overhaul your finances.
So this year, why not make some resolutions that will make you RICH?
1) Establish a Budget
The beginning of a new year is the perfect time to establish a budget that works for you. It’s never too late to start planning and examining your finances, no matter what stage you[‘re at in your life. You need to resolve that the New Year will have a positive impact on your finances.
Establishing a budget will help you ensure that you always have money for the things you need. Whether it’s saving for a luxurious vacation, or the latest gadget – your budget can help you get there. If you’re in debt, this can also be the first step in creating a strategy to paying that debt down effectively.
One of the best things about a budget is once you’ve got a feel for how your expenses break down, you’ll be able to forecast your spending. You’ll be able to better predict when you might have a lean month or when you’ll have a big windfall.
You’ll honestly be surprised at how much you can accomplish by the end of the year. Start by making a list of your assets, liabilities and your current income status, and then start developing a budget for the future. There are many online resources that you can use to start creating your personal budget.
Think of budgets as a way to help you save for the future and achieve financial success. However, it’s important to be realistic with your goals and plans to ensure that you can achieve them. Keep in mind that your circumstances may change, which means that you just need to adjust your budget, rather than abandoning your plan in frustration.
2) Track Your Spending
Start tracking all of your spending, such as your mortgage or rent, car loan, phone, internet service, and include also all the cash withdrawals, banking fees, debit transactions and service charges that come out of your account every month. Make it a game. See if you can get everything.
The funny thing is that even though we may think we know how much we’re spending, we’re often painfully incorrect. Tracking your spending will not only make you more aware of how you spend your money but it works hand in hand with implementing a successful budgeting plan.
The first step to getting your finances under control is to know where your money is going. Once you’ve tracked your expenses for a while, you can step back and take a look at your spending habits. Any adjustments can happen here.
Tracking your finances sounds like an arduous task…but it doesn’t need to be. Many banks allow you to download your transaction history to an excel spreadsheet making this New Year’s resolution one that you’re sure to succeed at. If you’re more adventurous, try out an app. Mint.com has a great app for tracking your spending. And we offer a great course on how to use the tool effectively!
3) Set up an Emergency Fund
The New Year is a fresh start. That means you can take the time to take care of all the things you’ve been meaning to do but never had the time to…like creating an emergency fund.
An emergency fund is saved money that you can use during times of extreme stress, like if you were to lose your job, or needed to get your car repaired.
Do you have enough in your emergency account? A good rule of thumb is to have between 6-8 months of expenses tucked away for a crisis, but this only works if you keep your emergency fund separate from the other parts of your budget. Open a new account for it so that you can track how much you’re saving.
It will be tempting to use this money towards a vacation, paying off significant debts, or any other significant expense that arises in your life. This is why you should create a list of acceptable expenses for which this money is designated. Ensure that they are true emergencies; things like covering your living costs during periods of unemployment, medical emergencies, or even unexpected tax bills. This will help to keep you from dipping into the emergency fund unnecessarily.
4) Get out of debt
If you’re in debt, getting out of it may seem very difficult or even impossible. According to a survey by CreditCards.com, one in eight Americans don’t believe they’ll ever pay off what they owe.
That’s a major bummer. Getting out of debt is actually one of the most popular New Year’s resolutions. This resolution, like all others, tends to be forgotten within weeks…but here are a few ideas to help you achieve your goals in 2016:
a) Know how much you owe
It may sound simple, but this can be the hardest part.
The reason people get stopped at this early point is that they’re afraid of what they’ll find. No one wants to be confronted with the reality that that they owe an incredible amount of money, but it’s crucial that we confront our financial realities head-on.
Find out how much you owe when and to whom. Just write it all out.
b) Create an action plan
Once you know how much money you owe and when you need to pay it by you can create an action plan. Hopefully you’ve established your budget and have been tracking your spending so you know exactly how much you can afford to pay off.
Even if you can only afford the minimum…do it. It’s better than nothing. Once you get some momentum going you can go back and review your plan to see where you can make improvements but the first step is always the most important!
c) Spend Cash in 2016
Researchers have found that when people buy stuff with credit cards, they are more likely to make impulse purchases on luxury items because they feel like they’re using play money. If that sounds like you, cut it out!
Using cash creates a heightened sense of awareness. Once you have the physical dollars in your hands something clicks in your brain and you start to adjust your spending. People who make cash purchases only tend to spend 20% less than those who use some mixture of cash and credit.
In 2016, make it a point manage your finances before they manage you.