Starting Financially Fresh in 2020
As of this writing, we only have 22 days left in December, which means there’s just over three weeks left in 2019. I won’t freak you out by reminding you that that means that there’s only 22 days left IN THIS DECADE (okay, sorry…). Although I’m not a huge New Years resolution person, the start of a new year can be a great time to reassess and put new systems into place. Start the new year (and the new DECADE) on the right foot by doing some or all of the things below.
Although I’m not a huge New Years resolution person, the start of a new year can be a great time to reassess and put new systems into place.
Review Your Holiday Spending
Every year, the holidays can come as a bit of a surprise. I know that I’m always shocked when November and December roll around. And that’s one reason why holiday spending can throw us off our game. The start of the year is a great time to go back and review your spending around the holidays. The spending is still fresh and you can easily look back at your credit card or bank statements. Add everything up and see how much you spent this year on the holidays. And not just on gifts, but on travel, holiday parties, and decorations too. This is a great opportunity to see if you’d rather be spending less than you did or if you feel comfortable with what you spent. From there, you can plan throughout the year for this spending. This can look like saving money each month so that you have enough once the holidays come, or buying gifts throughout the year instead of waiting until November or December. If you start doing this, the holidays can at least be less financially stressful!
Map Out Your Non-Monthly Expenses
Something that is super easy to forget about when you’re creating a budget is the expenses that don’t come around every month. And those expenses are often the ones that can blow your budget completely! These can be things like car insurance, renters insurance, annual fees, licenses, subscriptions, etc. Make a list of all of those expenses. This is also a great opportunity to cancel anything that you aren’t using or don’t value.
Just because these expenses come up irregularly doesn’t mean you can’t be budgeting for them every month. I recommend that you save for them all year. Once you’ve added up what they all cost, you should divide that amount by 12. For example, say you have $2,000 worth of non-monthly expenses. If you divide that number by 12, you get about $166. That is the amount that you should be setting aside into a savings account or separate checking account each month. That way, you’ll always be able to afford the bigger expense when it comes up. No more scrambling to pay your car insurance!
Define Your Goals (Get Specific)
As Ericka Young said on this week’s Money Circle podcast episode, it’s important to set SMART goals for yourself. That means that your goals are specific, measurable, achievable, relevant, and time bound. Yes, this sounds like something you’d talk about in a meeting at work, but there’s a reason that SMART goals are so useful. You’re giving yourself specific goals that you can measure and you also have a deadline.
Rather than saying something like, “I want to save more”, you would say, “I want to save $1,000 by December 2020”. By doing this, you can divide $1,000 by 12 and see that you would have to save at least $83 a month to reach your goal by next December. Then you can build that $83 into your monthly budget and make sure you’re saving it (see below for more guidance on that). This approach can be applied to any financial goal, like wanting to increase your income, paying down debt, or saving up for emergencies or other fun things. But once you write the down and get specific, you’re much more likely to reach them.
Revisit Your Monthly Budget
A budget, unfortunately, is not a set it and forget it thing. It’s kind of like the Constitution… or what our Constitution should be. It’s a living, breathing structure that should be revisited regularly to be changed to reflect the reality of the times. That’s why the beginning of a new year is a great time to revisit your budget. Go through all your bills and update your numbers. Did your rent go up? Did Netflix raise their prices again? Perhaps your student loan payment changed after you got a raise this year.
It’s also a great time to build your goals into your budget. Whether that’s paying down debt or building up your savings, your budget should reflect those goals. Get clear on how much you can afford to be setting aside for your goals and put them into your budget as a line item that you stick to every month.
Automate Your Savings
As I told a dear friend yesterday, the only way to truly make sure that you are saving money is to automate the process. It’s human nature to want to spend our money on things we enjoy. Saving isn’t as sexy as going shopping. And if you promise yourself that you’ll save what’s leftover at the end of the month, chances are there won’t be much leftover, if anything. A new year is a great way to start implementing automated savings so that you can effectively save for your goals all year.
There are multiple ways that you can automate your savings:
Set up direct deposit with your employer. This is the option that I always used when I was employed. You can choose either a set amount or percentage of each paycheck and have it deposited into a separate savings account. You might even be able to set it up so that you’re directing money into multiple savings accounts for multiple goals. It’s a great way to set it and forget it.
Set up automatic transfers with your bank. If you don’t have the option to use direct deposit with your employer, or if you aren’t employed at all, you can use your bank for this. Many banks will let you set up automatic transfers into a separate account. The idea is that once a paycheck hits your account (or on a specific day of the month), a certain amount of money will transfer into your savings.
Use a savings app like Digit. This type of app can be a great way to make sure you’re setting money aside regularly. It even lets you set goals for your savings accounts. My one warning would be to make sure you don’t use the “round up” option if you have a tight budget. Using a round up savings function can be great for people who have leeway with their budget and aren’t very good at saving. But it can also be unpredictable and transfer more money than you might be able to afford. A better option would be to choose a specific amount of money per month that you want the app to transfer for you.
Put Your Credit Card Away
If you struggle with overspending or have credit card debt that you’re trying to pay off once and for all, there’s really only one way to get back on track. You have to stop using your credit card. I’m sorry, but it’s true! The more you continue to use your credit card, the more you’re increasing your balance and interest charges. It also acts as a crutch if you’re prone to overspending. It allows you to spend more than you can actually afford. So if you’re trying to pay off debt, or even if you’re just trying to teach yourself how to live within your means, you have to put your credit card away and stop using it.
If you’re like me and you have a lock box at home, put your credit cards in there. If you want to pay off the card and never use it again, you can cut it into pieces so that you can’t use it anymore. Other options might be literally freezing it into a block of ice so that it’s too difficult to get to. Or, more simply, give it to a trusted friend or family member who can hold it for you. But now that we live in a digital world, it’s also important to remove your credit card number from online stores. Log into your Amazon, Lyft or Uber, and Sephora accounts and replace your credit card with your debit card. Or better yet, don’t put any payment method in, because then you’ll be forced to type it in whenever you want to shop, making yourself think twice before making a purchase.
What are some of your goals and plans for 2020? Share in the comments below!