Every New Year, there’s an overabundance of hope that the turning of the calendar will create a significant divide between the old and the new. We like to believe this year will be markedly better than the last, but often times the how of this belief is vague, to say the least.
Come the first of January, we’ll suddenly feel the pressure of all these vague goals: eating healthier, spending less, earning more – the list goes on and on.
That’s a lot of pressure, right?
Instead of strictly looking at your end goal and being seriously overwhelmed as a result, why not start the New Year with specific tasks to get the ball rolling?
If you want your finances to look better January 1st than they have in awhile, start with these tasks.
#1: Perform a spending audit.
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This might seem like a monumental task if you haven’t already been tracking your spending for the 2015 calendar year, but it’s oh so necessary if you want to really understand where the leaks are and how to repair them for good.
If looking back over the entire year seems way too cumbersome, try looking at the last three months, or a time frame long enough to understand what your fixed and variable expenses are, as well as where your discretionary income is going.
While there are plenty of apps to help with the process of tracking your spending, don’t discount the added mental benefit of going the old school route and tracking/categorizing your spending manually. According to a reporter for The New York Times, taking this approach allowed him to really reflect on his spending habits and how they were serving him.
“Last week, Psychological Science published a study about how well students recall a lecture if they type the notes or write them longhand….The writers could better remember the message because they’d actually processed what it meant.
I think something similar happens when we try to automate our budgeting process…The result is a technically correct reflection of how our spending compares with our budget, but we miss the chance to process what the numbers mean.”
#2: Revamp your budget.
What good is doing all that initial legwork if you aren’t actually going to put your findings to good use?
After you’ve clearly outlined where your spending panned out for the year (or whatever time frame you chose), it’s time to figure out where you are leaking funds unnecessarily and how you can rework your 2016 budget to better fit your intended lifestyle, income, and short and long-term financial goals.
Here are a few things to consider:
1) Where did the “blind” spending occur and does this spending fit with your priorities?
If you spent an exorbitant amount on eating out this year but your stated priority was saving for vacation, you might need to find specific ways to cut back on the former in order to keep your spending in line with your goals.
2) Are you saving consistently?
Saving consistently for short and long term goals is key if you want to find yourself in a better financial situation in the next 12 months and beyond. If you don’t have a consistent savings habit established, where can you cut in order to apply those funds towards your goals?
3) What future expenses can you plan for now?
Financial hiccups occur when future expenses aren’t planned for in advance. Think about your holiday spending, for instance. If this leaves you with a large credit card bill you can’t pay off immediately, add it into your budget now.
#3: Set specific financial goals.
Kick those vague goals to the curb this year. It’s time to get specific with each of the milestones you’re working towards both in the immediate future and in the long-term.
If you haven’t already established goals for yourself, start with 1-2 short term (e.g. paying off one credit card balance in full and saving enough to visit family out of state) and 1-2 long-term (retiring in 15 years, being debt-free in the next five years).
These are all great goals on their own, but they are just the beginning. A well mapped out goal should read more like this:
Pay off entire $10,000 balance on “X” credit card by November 2016. Payments of X amount will be paid monthly in order to reach goal.
This goal sets a target achievement date and works back from there in order to determine the monthly payment amount. This would also take into consideration interest rate on the card and the weight the existing budget can bear in terms of increased payment amounts.
With these action-oriented tasks, making 2016 look financially rosier than 2015 will seem like a real possibility instead of just a shot in the dark.
Are you ready to get started?