The New Year is the perfect opportunity to hit the reset and catapult button.
Businesses have 5 and 10-year plans and revisit their business plans frequently.
Individuals and families should also make plans as well. Your household finances
are your personal economy and you should treat it as such. So take these steps to
get financially fit for 2019.
1. Identify your financial goals and make them SMART
What do you want? Before you start making plans to "save money", "get out of
debt", or "make more money”, ask yourself why. What is important about this goal?
How will your life be different as a result of reaching this goal? Be specific and
honest with yourself. After you’ve identified why you want to reach your goals,
you then have to quantify your goals.
Make sure your goal is SMART:
Specific
Measureable
Actionable
Realistic
Time bound
If you want to get out debt, you want to be specific in determining how much debt
you have, when you want to get rid of it, and how much money do you have to put
toward paying off that debt. The same concept applies when saving. Ask what is the
goal, how much is it, when do you want to have it, and how much can you put
toward it each pay period?
A financial goal without a dollar and a date is a dream!
2. Know Your Net Worth - Do an overall assessment of your financial status.
In order to get to where you want to go, you have to know where you are. Look at
your cash flow in 2018. Ask yourself these questions: How much money did I
make? How much money did I spend? How much did I borrow? Review your pay-
stubs, W2's, 1099's and QuickBooks to see how much money you earned this past
year. Next, look at your bank statements, credit card statements, receipts and see
where your money went. Are you in the red (more debt than cash in hand) or in the
black (more cash/assets than debt). Do you notice any trends?
You may have to track your expenses for a couple of weeks in order to start to find
your spending leaks and triggers.
Then, take an assessment of your assets (what you own) and liabilities (what you
owe) to determine your net worth. Assets – Liabilities = Net Worth.
Is the number is negative (in the red) or is it positive (in the black)?
You want to work toward getting in the black.
3. Create a Spending Action Plan
Next, you have to plan what you will do to reach your goal.
It starts with the “b” word: budget.
A budget is a way to plan your spending. After you’ve calculated your net income,
put 10% into savings and then itemize all of your necessary expenses such as
housing and food.
In order to be successful in your budget, you will have to ask yourself 3 questions:
1. What do I need to start doing?
2. What should I stop doing?
3. Can I reduce the frequency of something I do too often?
This will take some soul searching, prioritizing needs and wants, and understanding
that your spending choices has trade-offs. Break your action steps down into bite
size pieces. Start with no more than three things that you can and will do. You don't
want to overwhelm yourself; this will cause you not to get started or quit too soon.
4. Ditch the Debt
Good debt gives you leverage; you use it with anticipation of getting a return on your
investment. Examples of good debt: property mortgage, student/education loan or
a business loan.
Bad debt is money you borrow to live beyond your means, buying things you really
cannot afford that will not give you a return on your investment. Examples of bad
debt: vacations, clothing/shoes, electronics, “stuff.”
We are being affected by the “culture of debt” which makes us believe that carrying
debt is the norm and that its ok, but too much debt will affect your net worth and
your ability to borrow for investment needs. We have to attack our debt and get rid
of it!
Ideally, no more than 20% of your net income should be paid to all consumer debt
payments (credit cards, student loans). So, work on a debt management plan to get
your debt down to as little as possible.
You may have to put your overspending on ice – literally freeze your credit cards
for 2-3 months to break the habit and remove overdraft protection from your debit
cards.
5. Use Super Savings Strategies
The best strategy to reach your savings goals is to set up separate savings
accounts specifically to save for your major financial goals. This will help you focus
and track your progress. Next, you want to automate your savings by setting up an
automatic transfer from your paycheck to your bank/investment accounts. You may
need to curb impulse buys at the supermarket, plan meals and use a shopping list.
Also, make mini-cuts: Buy a medium coffee instead of a large, or try similar
downsizing in other ways you spend. A daily 50-cent savings equals about $15 per
month or $180 a year.
6. Your Mindset Matters - Tell Yourself You Deserve More
You deserve more! Not another dinner, gadget or clothing item, but to be safe if
you lose your job, to be free of bad debt and to save for something that will truly
make you happy. The next time you're tempted to spend, ask yourself: Do you
deserve this $40 candle/$25 dinner/$100 pair of shoes, or do you deserve more?
Your circle of influence will also affect your mindset and behaviors around money.
You need to be around people who share the same mindset around money in order
to be successful in your financial goals. Lastly, you have to live below your means.
Remember to stop spending mindlessly and stick to your spending plan. Take note
of your behaviors that help you move toward your goal and those that take you off
course, specifically "people, places and things" and make the necessary adjustments.
7. Schedule Time with Your Money
Your relationship with money will be one of the longest lasting relationships in your
life; therefore you need to spend time with your money. That means scheduling
time to look at your accounts, your spending, your goals, your net worth, and your
credit. You can put an alert on your calendar to check your accounts daily, weekly
or monthly. You should also make this a family affair, schedule meetings with your
spouse, parents and children to talk about your financial status and your financial
goals. Nurture the relationship and it will do you well.
As you embrace 2019, face your finances head on. Don't be afraid. Take your time
to make your plan and do the work. If you need advice, seek it. If you need coaching
or accountability, ask for it. You have to focus on what you want, so get to it! Happy
New Year! Make it a prosperous one! Start today!
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