“Be always at war with your vices, at peace with your neighbors, and let each New Year find you a better man.”
— Benjamin Franklin
By Kyra Morris, contributing editor | It’s almost January, a time for new beginnings. The holidays are just about over. Now it’s time to pay for the festivities. We often say to ourselves, “I’m going to do it differently this year.” Then we ask ourselves, “Is it worth the effort?” So many resolutions go unresolved and undone. So – can the New Year truly find you a better person.
Prior years’ studies show that around 51 percent of those who make resolutions regarding their finances feel they are better off financially after just one year. That’s over half. The percentages are in your favor. With a little forethought and some self-motivation, you can do it. Identify your goals and desires, and then develop your plan. Your financial resolutions may improve your overall financial health.
Get reacquainted with your finances. The way to increase your odds of achieving your financial goals begins with the simplicity of getting reacquainted with your finances. First look at what your resources are at this point in time. Create your personal net worth statement. What are your assets and what are your liabilities? Don’t worry about getting the most accurate numbers for everything. Use your best judgment. You can use Zillow.com as a means for evaluating your real estate. We have found it to be a reasonable guideline. For any debt balances do your best to come close, and again a reasonable number is all you need.
Second, analyze your cash flow. Gather together all of your bank, investment accounts and credit card statements from the past few months. From these, make a list of your recurring expenses in order of importance. Necessities are those that you have to spend money on like housing, utilities, debt payments and healthcare. Then look at those that the discretionary spending – the spending that you choose to do, but don’t necessarily have to do.
Believe it or not, food can be put in the discretionary column. Even though you have to eat, you do not have to eat out as much, and you don’t have to shop only at Whole Foods. Some parameters around your food budget can save you thousands a year.
Once you have your expenses identified as a whole, you then compare the expenses with your available income. If you are spending less than your potential income, hurray! This is a sign that you’re well on your way. If you are overspending, take some time to determine why. What’s the reason?
Your conscious awareness of your choices with spending is important. These choices should be directly related to your overall goals. For example, if you are spending a lot of money on types of exercise, then exercise should be one of your passions. If you are spending a lot of money on wine, then wine should be one of your passions. If you are spending a lot of money on wine and exercise — and you are not doing it as one of your life desires — then rethink the spending. Money cannot buy happiness necessarily, but it really won’t if you’re spending on the wrong things.
SMART goals are those that are specific, measurable, achievable, relevant and time-framed – and they are yours. This type of thinking aids in the planning process and increases your probability of success.
Build an emergency fund. Your emergency fund is the money market fund you aside to cover emergencies. Emergencies are not necessarily unknown. They are mostly unplanned. Therefore, some monetary reserves should be one of the first orders of business for any financial makeover. The recommended minimum for an emergency fund is three months of necessary cash flows.
Automate as much as possible. If you have the option to have expenses deducted from your paycheck or withdrawn from your bank account, do it. This can help you accomplish goals without even trying – retirement savings (check that box), mortgages and credit cards paid on time (check that box), and ultimately improve your credit scores (double check that box).
Simplify. Reduce the number of bank accounts you use and also credit cards. Eliminating extra credit cards is an easy way to eliminate the danger of running up debt and also means fewer accounts to manage.
Charitable contributions. It’s a universal truth – what goes around comes around. Charitable giving is beneficial in terms of self-perception, tax liability and basic humanity.
These are just some of the basics to help you begin your new year and your journey to maintaining or improving your financial health. You and your willpower are your most effective motivators. May your New Year resolutions help you become your own better person!
Happy New Year – and here’s to your financial success!