How many times have you set a New Year’s resolution only to come up short at the end of the year? Many people make resolutions each New Year that end up being a form of “cultural procrastination.” Some people claim that resolutions are just a way of motivating us to make changes that we want to see happen. Maybe this is all true, but in a small way, people make resolutions because they are unhappy about specific things in their lives. They may be unhappy about the amount of debt they are in, the lack of freedom they have because of their limited income, or about their inability to save enough money.
This year, why don’t you think of financial resolutions as ‘setting financial goals’ as opposed to ‘making New Year resolutions’? When you think of the word “goal,” you see it as the desired result that you wish to achieve. It’s basically an end-point where you see yourself after a certain period of time. “Resolution” however is more long-term and something that you are always working on instead of actually completing.
With money being one of the leading causes of stress, creating a plan for your finances for the New Year is a great way to relieve some of that stress. Nothing makes one feel better than knowing that they have a plan in place to guide them towards success and reaching their personal goals.
Here are some small and large smart financial decisions that can turn your life around in 2018.
Begin with a budget
A detailed budget is one of the most important tools for achieving your financial goals. Without an understanding of what you are actually spending versus what you can afford, you will likely keep falling into debt. Begin by recording your monthly expenses. With a realistic understanding of your finances and spending, plan your monthly budget according to your needs e.g. rent, electricity, transport, savings, risk cover versus wants e.g. movies and eating out.
As part of your budgeting exercise, look for ways to cut back on unnecessary expenses. Instead of paying for a subscription, for example, you could be paying off an expensive debt. And if you are lucky enough to be debt-free, invest this money.
Create Simple Habits
It is true that a simple habit can change your life. For instance, after budgeting for your monthly bills and necessary expenses, give yourself some spending money. Physical cash can make the money feel more real. It is a psychological reminder that you have a limited amount. On the contrary, using a debit or credit card at every purchase can make you forget that your funds are quickly draining from your account.
Prioritize Your Debts
Not all debt is equal. Make a list of your liabilities and organize them by the annual interest rate. Those with the highest rates (most likely your credit card debt) should be paid off immediately to ease the strain on your budget. Once you are rid of short-term debt, increase your repayments on long-term debt, such as your mortgage or student loan. It does no good to invest money while you are paying 14 percent or more in interest each year.
Protect yourself against the unexpected
You never know what life will bring you. Starting an emergency fund is one way of protecting yourself if you run into hardship. There may come a time in your life when you are in between jobs, experience an illness, or have hardship befall a loved one whom you need to take care of. While insurance is often a grudge purchase, it is vital to protect your future income against unexpected events which could plunge you or your loved ones into financial hardship. In these instances, it is important to know that you are secure despite your circumstances.
Make the most of sudden windfalls
If you are lucky enough to receive an annual bonus, plan carefully to make the most of your windfall. Channel funds into repaying outstanding debt, or consider creating a rainy-day fund to help you cope with unexpected expenses, such as vehicle repairs or purchase of a new electronic appliance. You should continue adding to your emergency fund until it equals at least three times your monthly salary. Deposit this money in a separate bank account or money market fund in order to avoid the temptation to spend it.
Do Some Research
Learn all you can about finance so that it no longer is an enigma to you. By learning, you will give yourself the confidence to make wise financial decisions. One way you can do this is to use some of the resources that actual accountants and financial advisors use. Invest in books and take up courses to deepen your understanding of what you can do on your own. The more you know, the better you can approach your finances.
Take a stress-free holiday
After a year of dedicated hard work, you should have covered all your financial basics. Enjoy a care-free holiday, and congratulate yourself on entering the New Year on a secure financial footing.
Stay motivated to stick to your financial goals by taking the time to reflect on your achievements thus far. If you have not achieved all these goals, write them down for first thing next year. Teach your children important financial lessons to prepare them for the future, focusing on budgeting, distinguishing between wants and needs, and the importance of saving. You should also make sure that your family knows where to find important relevant financial information and who to contact in the event of an emergency.