Twenty Seventeen is just around the corner, and with a new year comes…. Resolutions! Goals! Ch ch ch changes! I’m sure you’re all working hard on setting a blue print for how you want your new year to unfold. Perhaps it’s a new hobby? Or a class you’ve always wanted to take? Or finally taking that trip to Seattle?
BUT! Before any of that gets done, I’m a firm believer in straightening out and cleaning up your finances. I always begin my new year with an overview of how I want my checkbook and savings account to look. So today, I’m sharing what I like to do before the start of a new year — financially speaking, of course.
ESTABLISH GOALS
Does it surprise you that establishing goals is the first and foremost item on this list? Planning and writing out your financial goals is the most important step in materializing what it is you’re setting out to accomplish. Begin by separating your goals into three categories: short term (within the year), mid-term (2-4 years), and long-term (5-7 years). Are you looking to purchase a new car? Pay off a sizable chunk of student loans? Save up for a down payment? Buy a new MacBook? Save for your wedding? Start a travel fund?
And then for the Million Dollar Question: How much money do you need to get to each goal? How long will it take?
EMERGENCY FUND
When I was in my early twenties, I used to dread depositing money into a emergency fund. It didn’t seem all the necessary, it felt so cumbersome. And then my car needed a $500+ repair. Let me tell you, I was never more grateful for that little emergency fund of mine. I didn’t have to dip into my monthly budget to cover the cost, nor my savings account — I already had money set aside for situations (read: emergencies) such as this. Building an emergency fund is good preparation for the unexpected. If you don’t currently have one, I urge you to contribute whatever you can. Make it a priority for 2017!
PS. an emergency fund should have it’s own account, separate from your regular savings (which you should absolutely contribute to as well).
TRACK SPENDING
I’ve said this before, and I’ll say this again:
What doesn’t get tracked, doesn’t get improved!
Watch what you spend your money on. Have no shame, and move forward with honesty when logging your purchases. The goal is to simply see where you open your wallet. Where can you cut back? Can you afford to add more money into your savings / emergency fund? Remember all those trips you have planned this year? The new car? Are you able to put more money towards your financial goals by skipping Chipotle every now and again?
This is an important step prior to establishing a monthly budget.
MONTHLY BUDGET
OK, so now that you’ve mapped out goals, made an effort to drop money into your emergency fund and a savings account, AND figured out where you can make cuts… it’s finally time to construct a monthly budget. Think of it as a spending plan, which will help figure out where your extra cash should go.
Begin with your fixed expenses: rent / mortgage, utilities, health care, etc. Bills that occur every month, at a fixed amount (give or take a few $$$ for things like electricity). Next, add up your variable expenses: food, transportation, entertainment, clothing, etc. Refer to your spending tracker to ensure you’re being realistic on what your variables are. Note: some of your variables can be scaled down, if not eliminated all together. (I’d like to think I only spend $50 per month on coffee, but reviewing my money diary that’s definitely not the case…).
Once you figure out how much extra cash you have each month after you pay yourself first (see emergency fund and savings account), and then pay your necessary bills, play around with how much money you can contribute each month to meet your financial goals. Remember that new MacBook you wanted to save for?
I have confidence in you, dear reader, that implementing these steps will be a breeze! Let’s check back in come February, and see where we are! Managing your money is fun, challenging, and totally rewarding.
My big ticket item for 2017 is a kitchen renovation! What are some of your goals for the upcoming year?