New Year’s Eve is right around the corner and in addition to picking out that perfect sequined party dress, you might be thinking about what New Year’s resolutions you’d like to take on. Maybe this the year you commit to working out three times a week, learn how to code, or conquer your fear of heights by trying out indoor rock climbing! (Yikes!)
The new year is also a great time to think about money. How are your spending and saving habits lining up with your values? Are you making financial choices that reflect your goals, or simply keeping up with the Joneses?
If you’re setting financial New Year’s resolutions, you’ll have a higher chance of sticking to those goals if you keep them specific and break each resolution down into smaller action items. The goal will seem easier to attain, and you’ll finish out 2016 even closer to achieving your dreams. Vague goals are less likely to result in action, so let’s replace some common vague goals with something you can take to the bank (pun sort of intended!).
Vague Goal #1: “I’m Going to Save More Money”
When you say you want to save more, what do you mean? Do you have something in mind that you’re saving for? As you formulate this resolution, identify a few places that you’d like to put more money into — they could be retirement accounts, investments, or a savings account earmarked for something big like a new home or travel.
Next, free up some additional cash. Maybe you never watch cable TV so you can switch to cheaper streaming services, or you pay extra for lots of cell phone data you don’t use and can downgrade to a less expensive plan. Picking big ways to save money will net you more savings than forgoing a weekly latte. Your willpower will fade over time, so making one change at the outset of the year will be more effective.
Now that you have money to save and things you want to save for, it’s time to automate! In less than 30 minutes, you can set up automatic transfers. At work, raise your 401(k) contributions by 1% in just a few minutes. Or allocate more money into a Roth IRA, brokerage account, or savings account by setting up regularly-occurring money transfers out of your checking account. This takes all the work out of saving money and whisks your cash out of your checking account long before you even know it’s there. It’s a great way to trick yourself into saving more, and you’ll really see the difference after a year.
Pro Tip: Set up a calendar reminder to spend 30 minutes on your finances each week. Make a list of financial tasks and tackle 1-2 of them each week. Making this part of your weekly review can help you reach your ongoing financial goals even faster.
Vague Goal #2: “I’m Going to Get Out of Debt”
Getting out of debt will buy you freedom and peace of mind, but it can be hard to know where to begin. Generally, the higher the interest rate, the sooner you should try to pay it off — this applies especially to credit cards, which can hit you with interest rates of 15% or higher. But if you have other forms of debt, you might need to prioritize them. This goal can be tough because it’ll require a lot of discipline and reduced spending, but trust me — it’s so worth it!
First, keep a roof over your head and a way to commute to work. Your mortgage and car payments are secured loans, meaning if you don’t stick to your monthly payments, you can lose your home and car.
Next, look at the kinds of student loans you have. If you have a federal loan you’re not paying back, the government can seize your wages. There are programs that can spread out your loan payments more manageably based on your income, which can help keep you from falling further behind.
Finally, turn your attention back to that high-interest credit card debt. Stop charging anything else to your credit cards until the debt is paid off. Whatever cash you free up (possibly by meeting goal #1 above) should go toward your credit card debt.
Vague Goal #3: “I’m Going to Stop Buying Things I Don’t Need”
Whether you love new clothes, dinners out, or last-minute vacations, we all spend money on things we don’t actually need. There’s nothing wrong with treating yourself, unless it’s preventing you from meeting your financial goals.
Trick yourself into spending less. One way to do this is to withdraw a set amount of cash each week for non-essential expenses, and once that money is gone, it’s gone. Another thing to try is removing temptation. Avoid window shopping or casually looking at your favorite online retailers. Before you buy anything, wait 24 hours to see if you still really want it. And remember: getting something you don’t really need on sale isn’t saving you any money! Keep your receipts and return items that you don’t love.
It may be time to get more serious about building a budget you can stick with. I have a few clients and other financial planners that swear by YNAB, which stands for You Need a Budget. One of my friends recently started a money coaching program just to help you get your budget in shape, pay down debt and build up savings, all using YNAB. Check out Be Awesome, Not Broke.
What a Difference a Year Makes
If you take some time to break your resolutions down into manageable pieces, you’re much more likely to stick to them. You have the power to get closer to meeting your big financial goals by the end of 2016! Map out a plan, automate as much as possible, and employ a few easy tricks to curb unnecessary spending.