Did you know that the top New Year’s Resolution in America every year is to get in shape (Vitagene)? As the clock strikes midnight on January 1st, 20% of us will be preparing to lace up our sneakers, purchase protein powder and vitamins, and finally figure out how to use those intimidating machines at the gym. For many, getting our bodies and minds healthy is the top priority in the new year.
But there’s another aspect of our lives that deserves just as much attention—our finances. Just like committing to a resolution to get healthy, having strong financial goals leads to personal well-being and confidence in the long run! With that in mind, here are our top three financial goals to work towards achieving in 2020.
1. Set Up & Stick to a Budget
As the next decade rolls around, one of the best things that you can do to set yourself up for success is to establish a budget.
Calculate Your Income
Start by asking yourself, “how much money am I currently bringing in?” You can easily calculate this by adding up regular paychecks, any income from side jobs, supplementary income, etc., and subtracting things like 401(k) deductions and taxes. You might be surprised to see the actual amount compared to what you originally estimated.
Find a System That Works for You
The first step in setting up a budget is to find a method of tracking that works well for you! How—and where—you set up your budget should be based on your personal preferences.
If you’re the hands-on type and prefer to review exactly where your money is going, try setting up an Excel or Google Spreadsheet. In one of these programs, you can utilize preprogrammed formulas so that you don’t have to break out your calculator. You should also make it a point to save all receipts so that you can analyze your spending habits in detail (we’ll dive into that topic further in the next section).
On the other hand, if you lean towards time-saving, high-tech methods, use a site or app that syncs with your credit cards and bank accounts. That way, you can see where your money is going at the press of a button without having to put in a lot of time each month.
Calculate Your Expenses—Including “Fun” Funds
How much money is going towards your necessities (e.g., utilities, rent or mortgage, groceries, gas, car payments, etc.)? Make sure you factor in “fixed” payments (bills that don’t change from month to month) into your budget as well as your variable payments (things like groceries or gas). While these may be a bit harder to calculate, do your best to estimate how much you spend on them per month.
Your budget shouldn’t be all work and no play. The secret to creating a budget you’ll stick to is to set some money aside for a “fun fund”—the things you enjoy the most. Take some time to determine a few discretionary purchases (like streaming services or your daily latte) that are the most important to you and figure out how to make some room in your budget for them.
2. Save a Little Every Month
The Savings Trio
Saving money is easy to say you’ll do, but challenging to follow through on. By setting up a budget first, you’ll have a better idea of where your money is going, making it easier to save. In practice, you should be putting money towards three savings goals each month: your retirement fund (IRA, 401(k), etc.), your emergency fund (2-6 months’ income for those unexpected expenses like car repairs or illness), and your personal goals (a down payment on a home, paying off debt, etc.). We like to refer to this as the savings trio.
Based on the budget you laid out, determine the amounts you can comfortably contribute to each part of the savings trio. If needed, reduce the budget for your “fun fund” and variable expenses to allow you to save even more. Set up automatic transfers to your savings account(s) so you don’t even have to think about it—and won’t be tempted to skip saving for the month.
3. Get Out of Debt
The start of a new year signals the chance for a fresh start. If you’re like many Americans, you may be looking for the opportunity to transform your finances in 2020. One of the best ways to improve your financial health is to get out of debt.
Know Where You Stand
You can’t get rid of your debt unless you know how much you have. As tempting as it can be to jump right into paying off balances, it’s essential to start by knowing where you stand. To do this, you’ll want to create a complete picture of your finances. Gather together:
- your credit reports. Not only do they give you the most accurate representation of your credit history and where you stand, but they also allow you to double-check that all of your information is accurate.
- your most recent bill statements for all credit cards, mortgages, student loans, etc.
- all account information (including interest rates) for loans or other debts.
Once you have all of this information handy, make a list of all of your debts using the same method you used to set up your budget (e.g., low-tech or high-tech). On this list, be sure to document:
- The creditor’s name
- The balance you owe
- The minimum monthly payment
- Interest rate
Utilize Your Budget
After you have a complete picture of your debt, decide on a reasonable timeframe to pay it off (e.g., “I’d like to pay off all my debt in four years”). The key term here is reasonable. As much as you may like to pay off your debt quickly, creating an unsustainable, bare-bones budget is not realistic.
Use your monthly budget to help you decide how much you’re able to put toward your debt each month. Take your total monthly income and subtract your expenses, your discretionary income, and your savings towards retirement and emergencies. The amount left over is what you can allocate towards your debt. Rank and prioritize your balances from smallest to largest amounts, factoring in interest rates. Try to allocate more towards paying off your smaller-balance debts first.
For a more in-depth guide to jumpstarting your debt-free journey check out our related blog post here.
Stick to Your Goals in 2020 and Beyond!
Like all New Year’s resolutions, adhering to these three financial goals can be tough, but will pay dividends in the long run. Be patient, work hard, and stay motivated!
Struggling with more debt than you can manage? Looking for help with setting up a debt repayment plan? We can help! With ACCS on your side, you may be able to pay off debt faster and for less than you originally owed. Request a Free Debt Relief Evaluation today!