- Review your financial successes and failures from the prior year.
- Build momentum by focusing on your prior successes.
- Build a budget to help guide your spending.
- Don’t overlook small-dollar transactions that can add up to big savings.
- Constantly seek out information tools to help you stay on track.
The new year brings the opportunity to make adjustments that can change the trajectory of your financial wellbeing. To capitalize on this opportunity, you must do things differently. Instead of making grand goals, you will abandon by the end of the month, try the following strategies to get your finances in order this year.
1) Tally Your Financial Successes and Failures. A review of your financial activities over the prior year might include recognizing progress toward financial goals or comparing year-end financial statements across multiple years. Did you build on your emergency fund, increase retirement balances, or end the year with more debt and fewer savings?
2) Build Momentum by focusing on successes and taking stock in the behaviors that led to positive results. Were you able to build retirement balances through automatic contributions? Did a spending app help you stay on budget? Did enlisting the help of a professional debt counselor help lower credit card balances?
Explore your most successful actions and find ways to duplicate those behaviors in other areas of your financial life. If automated contributions worked to increase savings, use automatic payments to reduce debt. When financial spending apps help you control impulse buying, an investment app could improve your savings rate. Working with a professional can impact debt reduction, retirement planning, or monthly budgeting practices because it creates accountability and provides ongoing motivation to achieve the financial goals you want to reach.
3) Let Your Budget Be Your Guide. The key to any budget is to create one that will guide spending. If it takes too much time to prepare, you will abandon the process before starting. If it’s too complex, you will create one and never look at it again.
A successful budget only requires a few elements.
- It must set parameters around spending by category. At a glance, you should know about what you spend on housing, food, transportation, entertainment, and so forth.
- You must track expenses adequately enough to determine if actual spending falls in-line with the budget parameters you set.
- It must be fluid enough to account for changing spending needs throughout the year.
4) Incremental Changes Can Move Mountains. Improved financial health usually involves some combination of lowering living costs and increasing income. Whether you focus on reducing debt or earning more, small changes can lead to big gains. Small-dollar purchases add up quickly and don’t garner the same scrutiny of larger budget items. For instance, earmarking $5 a day to either savings or debt elimination, instead of that designer latte, will add up to $1,825 a year in cash savings or debt relief, instead of just an expensive coffee habit.
5) Use All Your Resources. The internet opened the door to an avalanche of information and resources. Today there is an app, often a free app, for almost anything. You can track spending, round up purchases and direct the change into a savings account, automate payments or contributions, and find guides to direct investment choices.
Financial planning strategies do not need to be complex to be effective. Begin the year by reviewing your progress and then build on the things that resonated with you. Strategies used by your neighbor may not work for you. However, you can customize your financial plan based on your strengths. Then identify the best resources to stay on track.
