New Year’s is often a time for reflection, which can include a closer look at your spending habits. As calendars roll over, you’re given a fresh start to improve your personal or family budget, pay down your credit card balances, and beef up your savings. Consider starting off 2016 with some renewed financial plans.
Come up with a plan before Dec. 31
There’s no magic in beginning on Jan. 1, so go ahead and start your reset a little early. This may help you with debt by allowing you to plan for the often-expensive holiday season, even before your wallet reset really begins.
Make goals and life changes, not resolutions
Resolutions are pretty absolute, so by making some about your finances you may be setting yourself up for failure. Marguerita Cheng, CFP®, CEO of Blue Ocean Global Wealth in Rockville, Md., says making progress toward goals is a better way to get your finances in shape in the New Year.
“People beat themselves up a lot, but life happens. The most important thing is for people to take action and feel comfortable about the progress they’re making,” Cheng says. “What matters is that they set goals to be better stewards of their finances.”
Make the year ahead happier with targeted spending
Everyone spends money on things they don’t really need or want, sometimes as a compulsion or because of peer pressure. There are ways to avoid these unnecessary costs, especially if you’re struggling with debt. Experiment by targeting your spending to get the most from your money, for example by paying for experiences instead of objects, buying for others instead of yourself and only shopping for items you really enjoy or need.
Splurge just a little to satisfy a spending urge
Although you can find many ways to enjoy yourself without spending much money—going for a walk, gardening, cooking or crafting, for example—sometimes you’ll want to have dinner with friends or go to a movie. That’s not a bad thing, Cheng says, but focus on making smarter choices with those spending urges. Instead of buying a large latte, get a medium, she suggests. Instead of getting name brands, try store brands.
“I don’t want people to think that just because they have debt, they can’t enjoy life,” Cheng says. “It’s all about choices. Giving up a little bit of lifestyle today to get rid of that debt will mean more freedom to do more things you want to do in the future.”
Try to pay more than the minimum
If you only pay the minimum on your credit cards, you may pay exponentially more in interest—depending on your balance, possibly thousands of dollars extra—and it could take you decades to pay off the balance. By adding even a small amount every month, say $50, you may pay off the same debt in far less time, often saving significant money in interest costs.
Look at your expenses and see where you might be able to adjust your budget to devote some extra cash to paying down your credit cards.
Leave some extra for a cash reserve in your savings account
According to a 2014 Fidelity New Year Financial Resolutions Study, “save more money” is the most popular resolution. But instead of making such a vague resolution, set a goal for how much money you’d like to have saved by the end of the year in either a savings account or in your retirement savings.
However, for people just starting to try to break the cycle of debt, Cheng suggests focusing on the habit of saving rather than on an end-goal dollar amount. Also, many people trying to pay off debt forget to devote part of their discretionary income for savings.
“Even if it’s only $25 every Friday, or something like that, set something up for emergency money,” she says. “Before you know it, you’ll have built savings.”
Get some help sticking to your new budget
Staying on a budget is necessary to make your 2016 financial goals a reality, but sticking to your plan can be difficult. Using a budget-tracking tool may help keep your spending in check. Using online tools such as Mint, You Need A Budget software, and the Left To Spend app are some options you may want to consider.
Don’t ditch your goals as soon as the New Year passes
If you’re finding it impossible to meet all the goals you have set, adjust them so that you’re more comfortable, Cheng says. And don’t give up the minute you miss the mark. Just because you alter your goals a bit doesn’t mean you’ve failed.
“I don’t want people to feel like it’s just so horrible and painful. I want them to stick with it,” she says. “And if you get off your plan, not all is lost. Know that you can get back on track and turn your situation around.”
Megan Craig is a Chicago-based journalist and communications professional who writes mostly about personal finance and consumer issues. She is a former reporter and editor for the Chicago Tribune. Follow her on Twitter @megcraig1.
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