Let me guess, you have a list of New Years resolutions each year. How many do you follow through on each year? You’re probably doing pretty good after week one, but how about month one? Month two? Three?
One the biggest New Years resolution that people should follow through on involves cash – saving it, not spending it. We all could save a little more and after the holiday season, we all feel things are a little tight. Of course, there are a lot of ways to improve your financial position and whether your goal is to save more money, lower credit card debt, or shore up your investment portfolio, the New Year represents a fresh beginning. The clock resets, you are now free to be disciplined.
Unfortunately, the new year doesn’t wipe your slate clean from the previous year. You still have to deal with the consequences of financial mistakes made in the last twelve months. However, if you have accumulated debt or depleted your savings, you can start to turn things around.
I’m as guilty of this as the next guy. I start thinking about the changes I can make in the New Year-lose a couple pounds, start taking care of problems around the house before my wife asks me to-but I tell myself I can wait until January 1. There’s a kind of beauty in starting on the first day of the new Year, a symmetry. Why screw that up?
But I’m here to tell you, that kind of thinking is a trap. It’s your subconscious telling you, “Hey, you can still indulge in 26 days of bad behavior. Don’t worry about it. You’ll make the changes in 26 days.” It’s as seductive as hell, but a better course of action is to start making changes immediately. You’ll slip up a few times, and by the first of the year, you’ll be more likely to succeed in changing your financial situation.
Prepare a Budget
Sure, you’d rather watch a football game on a Saturday afternoon, but if you want to plan better finances in the New Year, mute the game and pull out a pad and pen. The best financial planning advice I’ve ever received was from my father, who told me that a budget is the only way to keep track of money coming into-and going out of-your bank account.
Hide the Credit Cards
You can’t lower credit card debt if you’re racking up new charges every week. But if you leave the plastic in your wallet, you’ll be tempted to pull it out every time you hit a cash register. So put those cards in a safety deposit box or, if you want to go old school, slip ’em in a Zip-loc bag and hide them in your freezer. Behind that undated package of mystery meat you never remember to toss.
Involve the Whole Family
Single guys need not worry about this piece of financial planning advice, but family men take heed. If you want to make significant changes to your finances in the New Year, you need to make it a team effort. Involve your spouse and even your kids. It’s like dieting versus changing dietary habits. This should be a long-term metamorphosis rather than a brief act of deprivation.
Save a Designated Portion of Your Income
The amount you save depends on your budget and expenses, but 30 percent is a nice round number. If you start saving a dedicated portion of your income from the get-go, you’ll start thinking of your income as your salary minus that portion. Eventually you won’t miss it at all. Put your savings in an interest-bearing savings or money market account and forget about it.
Pay Off Small Debts
Financial guru Dave Ramsey suggests following the snowball approach if you want to lower credit card debt. In other words, pay off your small debts first, then tackle increasingly larger debts ’til it’s all gone. This approach might sound backward, but the goal is to start a snowball effect of paying off debt, meaning that you start small and gain momentum over time.
Evaluate Past Investments
Particularly your retirement plan. Have you made money or lost it? Are the returns commensurate with what you expected? The New Year is a great time to make drastic changes to your investment portfolio. Get together with a professional who can provide solid, actionable financial planning advice, and start learning how your current investments will perform over the next year.
Start Paying Cash
It might earn you a few dirty looks at the cash register when you have to take the time to count out bills (or, God-forbid, change), but ignore those credit-card-toting consumers. Paying with cash forces you to purchase only what you can afford in your budget. If you don’t have the cash on you, some purchases will be out of the question. It curbs impulse purchasing and makes you think about how you spend money.
The New Year doesn’t have to mark a significant change in your financial habits. In fact, it’s better if it doesn’t. A more practical approach is to make little changes spread out over a period of time, perhaps starting now and culminating in the New Year. By the time you hit the ground running next year, you’ll be in a good position to make positive financial decisions over the next twelve months.