Stop worrying about money and revamp your economic life with these simple and easy-to-follow New Year financial tips.
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These 10 Financial New Year Resolutions Will Help You Start the Year With a Bang!
If you’re not happy with where you are in your life, you probably want to improve a few things. One of the things that can make a massive difference is changing how you manage your finances. Unless you have millions in the bank, money is probably a source of stress for you.
Or maybe, it’s not the lack of money itself that’s the problem. Perhaps it’s the lack of information about money.
Whatever the case, this post has a few New Year financial tips that you can use to overhaul your economic life.
Let’s get to it!
Note: If you want to make sure that the New Year’s Resolutions you make will actually stick this time, read our latest post How to Write Your New Year’s Resolutions.
How to Achieve Your Long-Term Financial Goals and Change Your Financial Life
For many people who want to change their lives, the first step is always the hardest.
I believe people find it hard, not just because we fear the unknown but also because most people don’t know what the first step should be.
Let’s take finance, for example. It seems like a completely different language, right?
There are so many new terms you need to learn, so many costly mistakes you could make, so many paths you could take.
Where do you even start?
Start looking for advice online, and you could soon found yourself drowning in a relentless sea of information. Google isn’t always your friend.
A top tip?
Start with someone who’s achieved what you want to achieve. That’s why I recommend Jim Rohn when I talk about financial self-care. He’s been in debt, he’s paid off his debt, made millions, lost millions, and made millions again. He used to say, “Unless you change who you are, you’ll always have what you got.”
When I found him, I didn’t have much, so I was ready for change.
If you’re in the same place as me, brace yourself. This is going to be quite a ride!
#1: Crunch Your Numbers to Get a Baseline of Your Financial Health.
Crunching your numbers will allow you to develop a financial statement that gives you an accurate picture of your current financial circumstances.
If you’ve never done it before, you’re probably asking, “What is a financial statement, and how do you develop one?”
It’s fairly straightforward. Just take a piece of blank paper and draw a line in the middle. On the left side, you list the value of all your assets (everything you own that has value), and on the right side, you name the value of all your liabilities (everything you owe).
You then add up all your assets as well as your liabilities.
Subtract one from the other. The number you end up with is your net worth.
This entire statement is called a balance sheet.
Developing a financial statement is super important, but most people miss this step and usually go straight to trying to save. That’s like starting with Step B rather than Step A and doesn’t work well.
Why exactly do you need to crunch your numbers?
So you have a baseline. Or to use Jim Rohn’s own words, so you can “take a picture of where you are” and see where your money is going and what you can actually afford.
This knowledge then allows you to create a budget that actually works.
#2: Set a Household Budget.
Do you know why many household budgets don’t work?
Because they usually don’t give you a big enough picture of what’s actually happening, often excluding big, one-off spends like a holiday or Christmas.
To mitigate that, I recommend using a robust budget app, like Pocketsmith. It’s a great tool for people looking to improve their financial health by ensuring they create realistic budgets. If you’re an Excel sheet fan, however, then the Money Saving Expert’s (MSE) FREE Excel budget planner (printout version available here) is amazing.
Once you complete your budget, you’ll see how much money you need to stay on track and set you up for financial success. It will help you:
- Get a picture of the money in your bank account
- Track your spending
- Determine how much money is going in which direction
- Create a plan for the future that allows you to improve your financial health
- Always cover important bills, like rent or mortgage
- Pay down debts – or pay off your balance completely
- Save and invest
- Take out an insurance policy
- Meet your investment objectives
As you can see, a well-crafted and well-implement budget can change the direction of your life.
Note: Be warned. If you’re doing this exercise because your finances are in dire straits, then seeing the accurate picture of where you are will not be pretty. And it definitely will not feel good. At all.
At least, at first.
But the silver lining in this scenario is that now that you know where you’re at, you can make a plan to change direction. Examine any errors and make the necessary corrections.
You don’t have to keep doing what you’ve been doing; It’s gotten you nowhere in the past.
You can change. And that is something to celebrate.
#3: Set Ambitious but Realistic Financial Goals.
Setting ambitious and realistic financial goals can be challenging, especially if you’ve never done it before. Here are some tips to help you get started:
- Collaborate: When setting financial goals, it can be helpful to work with a financial expert, an advisor or mentor who can provide guidance and support.
- Be clear: Decide where you want to be five years from now and then crunch the numbers. How much do you need to be earning in order to build your dream house, travel the world, or retire early?
- Believe in yourself: You have great capacity for change. Maybe you’re at the bottom rung of the ladder right now. You have the power to go up, so go for it!
- Commit: Hold yourself accountable. If your financial New Year’s resolutions involves clearing a high-interest credit card, then don’t stop until it’s done.
- Be honest: Set goals that are based on your current financial situation. This can help you avoid setting goals that are too ambitious or unrealistic.
- Be aware: Know your strengths and weaknesses when it comes to managing your finances. This can help you identify areas where you need to improve and develop a plan to address them.
#4: Pay Yourself First (AKA Save).
Pay yourself first simply refers to the need to save and has been called the financial secret to getting rich. It comes from the classic book, The Richest Man in Babylon by George S. Clason.
A percentage of your income must go to your savings, preferably to a high-yield savings account – and it must go there first.
Of course, this depends on a number of factors. If, for example, all you have is a regular savings account and a mountain of credit card debt with insanely high-interest rates, then forget this advice for now and pay off your credit card first.
MSE’s Martin Lewis actually keeps reminding people that it would be better to reduce debt first before saving money because the interest rates for a savings account are at an all-time low.
That said, IF you don’t have any debts or if the interest rates in your savings account exceed your debts’ interest rates, then, you must pay yourself first.
According to The Richest Man in Babylon, the money you set aside for yourself must be no less than 10% and should never be spent until you are financially free. In other words, your money needs to make enough money to support the lifestyle you choose without you having to trade your time.
Even then, you’re only supposed to spend the interest. Never the principal.
This is your ticket to wealth.
#5: Reduce Your Spending.
Once you know where your money is going and how much you can comfortably afford without wrecking your future, it’s now time to reduce your spending. Reducing spending without feeling deprived can be challenging, but there are several ways to do so. You can:
- Look for cheaper alternatives to the things you enjoy. For example, instead of going out to eat, try having a picnic instead.
- Identify the things that are most important to you and prioritize your spending accordingly. This can help you avoid feeling deprived while still saving money.
- Set up a system of rewards for achieving your financial goals. This can help you stay motivated and avoid feeling deprived.
- Look for creative ways to save money, such as using coupons, buying in bulk, or shopping at thrift stores. We used to save a lot using our Amazon Family account, so I really recommend that.
- Implement a wait-and-see approach to online shopping. Add something you think you should buy to your cart and then wait thirty days to see if you still need to get it. It’s a great way to curb overspending and impulsive buying.
#6: Increase Your Income.
You can do so many things alongside your full-time job that can increase the money you have available. This is very helpful, especially if you’re relying on one stable full-time income.
You can take an inventory of things you don’t need or use but are still in good condition and sell them. We found Facebook Market and eBay really useful in this case.
Get a part-time job. The holidays are usually the perfect time to do it as most companies, especially those in retail, will be hiring temporary festive staff.
#7: Make a Plan to Pay Down Your Credit Card Debt.
Once you’ve stopped living from paycheck to paycheck, and have a few more dollars at the end of the month, you can use whatever’s left to pay off debts. Choose between paying the debt with the highest interest first or the smallest credit card balance. Either way, paying down your debt can free up more of your money and drastically reduce your spending.
Don’t have to pay your balance because you have no debt?
Good for you!
It’s now time to increase the 10% you save for your financial freedom.
For more information on paying off your debt, please read the following:
- Accelerated Debt Payoff: Debt Snowball vs Debt Avalanche
- 5 Actionable Steps To Get Out of Debt On A Low Income
- How To Pay Off Debt When You’ve Lost Your Job and Have No Money
#8: Set Up an Emergency Fund.
Life has this weird way of throwing us a doozy when we least expect it. According to Mary Schmich, “The real troubles in your life are apt to be things that never crossed your worried mind, the kind that blindsides you at 4:00 pm on some idle Tuesday.”
That’s why you need to set up an emergency fund, “an important part of any financial plan that can be the difference between comfortably surviving an unexpected event and financial distress.” It’s something to tide you over when life isn’t playing ball.
Lost your job? You can cope until you get a new one.
Your windshield shattered when a truck came roaring past? You can get it replaced, no problem.
Pipe burst and your second floor bathroom flooded? You got money to spare.
Here are some tips on how to set up an emergency fund:
- Determine how much you need: Financial experts recommend having three to six months’ worth of living expenses saved in an emergency fund.
- Start small: If you don’t have an emergency fund yet, start small and gradually build it up over time. Even saving a small amount each month can add up over time.
- Automate your savings: Set up automatic transfers from your checking account. This can help you save consistently without having to think about it.
- Choose the right account: Consider opening a separate savings account specifically for emergencies. This can help you avoid dipping into the fund for non-emergency expenses.
- Keep it liquid: Make sure your emergency fund is easily accessible in case you need it quickly. A savings account or money market account is a good option.
- Replenish it regularly: If you have to tap into your fund, make sure to replenish it as soon as possible. This can help you stay prepared for future emergencies.
#9: Set Up a Retirement Plan.
A retirement plan can help you set up a plan so you can live comfortably when you’re no longer working, ensuring that you have enough income to support you during retirement.
You may wonder why you need this when you’re still young, but starting a retirement plan early means you get to benefit from compounding interest, lower retirement plan contributions, more flexibility in investment choices and strategies, reduced financial stress and uncertainty later in life, and increased retirement income security.
As part of your plan, you could open an individual retirement account (IRA). For more information on IRAs, read “Here are 5 steps to opening an IRA to start saving for retirement.”
#10: Get Life Insurance Based on Your Insurance Needs.
Life insurance is an important, although not often discussed, component of a sound financial plan. Here are a few reasons why you need to get one:
- They can provide financial support to your family in case of your death, covering expenses such as funeral costs, outstanding debts, and ongoing living expenses. This is particularly important if you’re the breadwinner.
- It can provide coverage against various risks such as accidents, illnesses, and disabilities. Depending on the policy, it can also pay for long-term care, especially where long-term illnesses are involved.
- Some policies offer tax benefits, which can help reduce the policyholder’s tax liability.
- They could also offer a savings component, which can help the policyholder save money for future goals such as education, retirement, or a down payment on a house.
- Some policies offer a pension component, which can provide a regular income stream to the policyholder after retirement.
#11: Improve Your Financial Literacy.
Improving your financial literacy sets you up for success. Aside from working with a financial advisor or a financial planner, you could also take classes, read books, or follow expert content. All these can help you reach your goals. I love Jim Rohn, George S. Clason, and Martin Lewis. Check them out below!
Jim Rohn was an American author, entrepreneur and motivational speaker.
If you haven’t yet, we highly recommend tuning in to a few of Jim Rohn’s talks on YouTube. What he said then is as true today as it was decades ago.
We really wish he were still alive today.
George S. Clason
Jim Rohn credited George S. Clason‘s book, The Richest Man in Babylon, as the book that changed his philosophy. So, we went and bought it (and we had to buy it because it wasn’t in the local library), and we have to say that it also revolutionized our thinking.
If you can only ready one book on finance, let this one be it.
It’s cheap (free, if you have it in your library).
It’s a short book and easy to understand. Set in Babylon, each chapter contains a series of parables that discuss the unchanging principles of wealth and abundance.
Have questions on precisely what to do with your money?
This book will have the answer.
For a more modern take on personal finance, we highly recommend Martin Lewis. His video below talks about debt problems, where to start and what to do about them.
His primary audience is the UK, but most of what he says will be valid across countries.
Set Strong Financial Resolutions With These New Year Financial Tips!
As you can see, personal financial development is crucial to a blissful life and the start of the new year is the perfect time to start! Finances in the new year tend to be a bit rocky, with the holidays often resulting in overspending.
We hope these tips can help you make better financial decisions, helping you understand how to make the best of the year ahead and allowing you to get your economic life in order.
For more information on becoming more financially literate, check out:
- The Importance of Personal Financial Planning + 6 Benefits
- Financial Literacy for Families: Why Teach Your Kids About Money
- Financial Literacy for Kids: Ways to Teach Kids About Money
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