The first few months of a new year can be a great time to take stock of your financial health. If you’re looking for some additional support as you get on the track toward financial wellness, here are five steps to help you gain traction.
1. Stop procrastinating
If you want to change your financial future, the first thing you need to do is stop putting it off.
“We are hard-wired to avoid pain and discomfort,” says Christine Haviaris, CPA, who is a Certified Financial Planner and founder of TTR Wealth Partners LLC in Lower Hudson Valley, N.Y. “It takes intention, courage and discipline to consistently confront a complex and scary topic. The good news is: It gets easier!”
Cristina Guglielmetti, a CFP and president of Future Perfect Planning in New York City, agrees. Gugliemetti points out that recognizing the major damage that out-of-control spending can cause in our lives may often make it even harder to face your finances. “Without a doubt, the reluctance to acknowledge everything makes it very easy to pretend spending isn’t what it actually is,” she says.
Getting your finances together, tackling debt, and planning for the future is often scary, and confronting past mistakes can be embarrassing, but don’t be deterred by feelings of shame or helplessness. You aren’t alone, and the sooner you take real action, the sooner you may start to see real results.
2. Be honest with yourself about your finances and financial history
One of the most important steps to take when changing your financial mindset is to be truly honest about your situation and how you may have incurred certain debts–especially if the debts may be a result of poor planning and budgeting.
“Unwillingness to reckon with how you got to this point, such as why the credit cards got run up in the first place, is a mistake I see all the time,” says Guglielmetti. “Do you need to say no to expensive nights out with all your friends?”
People generally raise their standard of living in proportion to growing income, but those with high salaries can live paycheck-to-paycheck and max out credit cards just as easily as people with lower incomes. It’s important to be honest about your financial habits so that you can build a system of budgeting and saving to plan for your future instead of living only in the present.
3. Simplify and automate
You need only one mathematical equation to save money: Income – Spending = Wealth. Regardless of your income, if you spend less than you earn, you will be able to save as long as you avoid overcomplicating that formula.
“In reality, the more simple and streamlined your methods, the better chance you have of changing habits,” Guglielmetti says. She recommends automatically depositing your salary into your savings, not your checking, account.
“Make saving a non-negotiable item by directing income to a savings account, then creating a monthly transfer to checking for all expenses,” she says. “That way, a portion remains in savings without your having to move it there yourself, and you guard a bit against lifestyle and expense creep as income grows.”
Haviaris agrees: “Having savings be automatic means it never gets pushed down a to-do list.”
Guglielmetti also recommends having only one credit card for spending and setting up daily text alerts with the balance. “Good or bad, it keeps everything from getting out of control!”
4. Take small, consistent steps for long-term success
In life’s tortoise-and-hare race, follow the tortoise’s strategy: slow and steady wins the race.
It’s could be as simple as changing the way you think of money. Did you grow up with money insecurity? Does thinking of saving for the future make you uncomfortable? Confronting and shedding fears about managing money is a small but vital step.
“With every step, confidence builds, and soon momentum takes over,” Haviaris says.
Likewise, living below your means may also help right a tilting financial ship. Cook meals instead of eating out or make coffee at home instead of stopping at a coffee shop. Spend mindfully, carefully choosing your luxuries.
“Understand what spending mindfully and with intention means to you,” Guglielmetti says. “Once you truly evaluate your spending, how does it make you feel? Are you comfortable with the number and just want to organize things better? Do you want to reduce?”
5. Ignore the market and focus on you
It’s hard to Ignore what the marketplace may be saying about the financial habits of today’s younger generation. “They are afraid to invest … they don’t understand the market … they don’t trust it.”
Keep in mind, though, that the market isn’t everything, and experts say paying too much attention to it can undermine efforts to turn finances around.
“For most people, budgeting and understanding spending is much, much more important than what the market happens to be doing,” Guglielmetti says. “It’s difficult to tune all that out. After all, there are innumerable cable channels and publications dedicated to endlessly dissecting the day’s market moves and making everyone feel like they must act now or they’ll miss out on a big opportunity.
“You can’t control what the market is doing, or tax rates, or interest rates or world events. You can control your spending and savings rates, though, so do that,” says Haviaris.
“Many people want to jump right to investing before building a solid foundation of good money skills. It’s like building your house on sand.”
That doesn’t mean you shouldn’t ever invest. But if you choose to, it’s always smart to plan carefully, and if necessary, speak to a professional.
The information contained in this blog post is designed to generally educate and inform visitors to the Equifax Finance Blog. The blog posts do not give, and should not be assumed to provide, personalized tax, investment, real estate, legal, retirement, credit, personal financial, or other professional advice. Before making any financial decision, you should always consult with the appropriate professionals who can explain your options, rights, and legal responsibilities, and advise you on any tax, legal, credit, or business implications that may result from those decisions. The views and opinions expressed by the authors of blog posts are their own views and may not be the views or opinions of Equifax, Inc. and/or its affiliates.