Are you starting to think about New Year’s resolutions yet? If not, here’s a suggestion: make 2020 the year you finally take control of your finances. Make next year the year you make a big dent in your debt and start paying forward into your future. The better financial decisions you can make in the coming year, the better off you will be.
The thing about New Year’s resolutions is that they often wind up abandoned before January finishes. Staying true to your resolutions is all about setting reasonable goals. Start small and then work your way up. With each goal achieved, you will be motivated to move on to the next one.
The idea of starting small is especially important in the arena of financial goals. Trying to tackle the biggest problems first just makes better financial management more difficult. You start small with the understanding that you will build momentum along the way. That first small victory supplies additional resources with which to address the next problem. The second victory increases your momentum as you move on to the next issue, and so on.
To that end, here are four good financial goals for your New Year’s resolutions:
1. Create and Stick to a Budget
Data suggests that 93% of American adults believe budgeting is good yet only 39% actually do it. That’s too bad because a budget is a foundation on which every financial decision is made. Make 2020 the year you create and stick to a budget. Just remember that a budget is not an ironclad spending plan. Rather, it is a record of how much money you have coming in compared to how much is going out.
Also, note that budgets should be flexible. They should account for changes in your circumstances. Think of a budget as a blueprint subject to modifications. The only hard and fast rule is that you do not spend more money than you earn.
The starting point for a budget is accounting for all sources of regular income. This includes your main job, a second job if applicable, hobby income, and so forth. Do not include any income that you cannot count on receiving. Then, move on to your known expenditures. They include your routine bills as well as any future expenditures you know will be coming.
If your income exceeds your expenditures, you are in good shape. You are not in such good shape if the numbers work out the other way around. A budget that shows more expenditures than income says you need to cut spending, increase income, or both.
2. Look for Childcare Savings
Today’s working families can spend quite a bit of childcare. Yet there are ways to save. For example, an in-home daycare can probably provide a less expensive option compared to a large, commercial provider. In-home daycare centers can do things more cheaply because they have less overhead to pay for.
Likewise, it might be cheaper to hire a sitter to come to your home. You could even split things up so that the kids are in daycare a few days a week and with grandma and grandpa the rest of the time. Every penny not spent on daycare is another penny put back into your budget.
3. Set Up Automatic Saving
It’s curious that people oftentimes don’t save money because they think they don’t earn enough to do so. For most of us though, that’s not true. We spend a lot of money we don’t need to spend, money that could be saved instead. So here’s what you do: have your paycheck direct deposited into your checking account. Then set up an automatic monthly transfer that sends money from your checking account into a savings account.
Because it’s done automatically, you will not even have to think about it. Saving will be just like paying another bill. Over time, you will be amazed by how much money you can save by setting up an automatic transfer. And in so doing, you will be investing in yourself.
The general rule is to have at least one month’s salary in savings. As the thinking goes, that is enough money to carry you through most emergencies. But guess what? You do not have to limit yourself to that amount. As long as you are automatically transferring to your savings account every month, and not suffering financially because of it, there is no reason to stop just because you have accumulated a few thousand dollars. Keep saving and watch your account grow.
4. Target Debts to Pay Off
All of us have those long-term debts we are paying every month. Did you know that the longer it takes to pay off a debt, the more that debt costs you? The combination of time and interest payments causes the actual cost of borrowing to go up the longer it takes to pay. It is all due to how interest is charged.
Let us say you have a credit card that charges 12% annually. Your monthly interest charge will be 1% of your outstanding balance. If you have a balance of $100 you pay off in a single month, your total interest will be $1.00. If it takes you four months to pay the balance at $25 per month, your total interest will be $2.50. As you can see, you would save $1.50 by getting the bill paid off immediately.
A good goal for 2020 is to choose one or two of your long-term debts and commit to paying them off first. Dedicate every extra penny you have to getting them taken care of. Pay those debts completely and you will not only free up financial resources, you will also take a huge burden off your shoulders. And yes, that will feel good. It might even motivate you to attack the next bill even more aggressively.
You now have four financial goals to get you started for the new year. Make next year the start of a new kind of financial success based on controlling your spending and saving wherever possible.