A new year is the perfect time to look at your financial picture. You can look back at what you spent over the past twelve months and set a course for the new year. It’s not easy. But if you implement one or two of the following, you’ll set yourself up for success.
Track spending– Okay, let’s be honest. If you want to set a budget for the coming year, you really need to know exactly what you spend. From the $5 cappuccino at the fancy coffee shop, to the candy bar from the vending machine during your mid-afternoon break, to the donation for a fellow worker’s retirement party, it all adds up. And that’s where many people fail in tracking their spending. Tracking your spending means writing it all down. It’s not to say that you might not be able to spend that way. But if you don’t track it, and you expect different budget results, you’ll be hard-pressed to set a budget and stick to it.
Cut unnecessary spending– It’s easy to do, once you’ve tracked your spending accurately. You might not realize how much money you spend on a daily, weekly, or monthly balance. Look critically at the expenses you have and reduce where you can. Remember to tell yourself that if you reduce certain expenses, you’ll be able to take that money and use it to pay down credit cards or other loans.
Pay down debt– Many Americans face the prospect of paying off debt for years and years. Consumer debt hit an all-time high of $13 trillion in 2018. That’s due in large part to the rising costs of secondary education and growth of home, auto, and credit loans. If you haven’t already done so, look at all your debt, and determine the interest rates for each. Then, when you have extra money, concentrate on paying extra to the loans with the highest interest rate.
Set an emergency fund– More than half of Americans don’t have an emergency fund set aside, leaving them vulnerable when life throws a lemon their way. A good rule of thumb is to set aside six months of living expenses aside. But even a couple of months will help in times of need.
Follow a budget– Once you’ve figured out what you spend, and you know what your income is, it’s easier to set a budget that you can follow. And if you want to do other things like pay down your debt or save for retirement, using a budget is critical. Look at your monthly expenses as fixed, critical items like food, housing, utilities, etc., and discretionary spending like entertainment and restaurants. Then allocate your monthly income against your expenses. If you’re trying to pay down debt, or save more for retirement, the easiest option is to reduce your discretionary spending.
Making tough budget and spending choices isn’t always easy. But if you’re truly interested in financial success, it’s the best path for moving forward.