December 2018: New Year... New You
New Year, new you. At least that’s what a lot of people say when approaching the new calendar year. If you’re like me and you set yearly goals for yourself, whether your goals be professional ones or personal ones, for 2019 you should consider adding a category if it’s not there already, “financial goals”. For most people, there is some sort of personal financial goal they would like to achieve, like control their spending, increase their savings, or paying down some debts. For 2019, let’s make that goal a concrete one. So, for this month’s newsletter we will go over some practical ways to help you achieve these goals.
When it comes to the decisions of our personal finances, there are only certain things we have full control over. Unfortunately, most people do not have control over their income. So, let’s look at things we may be able to control, like spending. It helps to start with the items we can control, like our bills, debt, savings and discretionary spending money. Therefore, it is beneficial to set aside the portion of your income that is for your bills, debt and savings first, then what is leftover, we can consider as our spending money. However, some of us, do the opposite. We decide on the things we want to buy for the month, then pay our bills, and whatever remains we put towards our savings. “Oh well” we say, “I’ll make it up my next paycheck”. But eventually, next week’s paycheck becomes next month’s, then next month’s check becomes next year, then we’re five years into this pattern and we have completed no progress to our goals. Below are some self-created systems people use to help institute discipline for themselves:
Have separate bank accounts for your different intentions. One account contains money for your savings, one account is used solely for bills (rent, phone, car payment, insurance, debt payments) and finally one account is the money you can spend. Some people have accounts at separate banks so it’s harder for them to access the funds.
If your company allows for multiple direct deposits, this is an easy way to accomplish this tactic. The money is deposited automatically, so you never see it.
Envelopes. Some people like to cash their paycheck and organize what money is for what goal via their respective envelopes. Yes, paper envelopes work for some people.
In addition to cutting back on discretionary spending (shopping, concerts, restaurants, bar hopping etc.) you can try analyzing your bills and look for places where you may be able to cut back or reduce expenses. Some of the things that you can consider trimming or negotiating are: cell phone bill, is your plan too big? Insurance premiums, maybe your car insurance has slowly been increasing over the years for no reason? Do you have monthly subscriptions like Netflix or magazines, that you don’t use as much as you once did? Cable, can you get the programs you want using less expensive streaming services instead?
One of the biggest issues preventing people from achieving financial freedom, is the various types of unwanted debt. Debt such as credit card debt, student loans, car loans, or personal loans you owe to friends and family (Mortgage is one type of debt that may be wanted). You will not see instant results from paying down debt, but if not done, the debt(s) could potentially become much bigger. We go into further detail and discuss ways to pay off unwanted debt in a previous newsletter, here. The two easiest things to do is allocate any extra money you can to that particular debt you want paid off, even if that means putting an extra $10 every month to it. In addition, you may be able to refinance the debt to get a lower interest rate, which could potentially save you money, immediately.
For a lot of people, we are not natural born savers. As my grandpa use to say, “why save it, when it’s more fun to spend it.” However, a way to curb this attitude is to create goals and barriers for yourself. By creating and implementing your own barriers, rather than rely on a hope and a prayer, you are setting yourself up to succeed. In addition to the small systems mentioned above, consider setting long term goals. Because if you have a long-term goal that requires you to a develop a plan to save in order to complete, this may then help you to save. Determine the cost of this potential goal, give yourself a potential time line, and the plan will reveal what you should be saving every month. For example, if you have a goal to save $12,000 for a house down payment and 24 months to achieve this, you’ll discover that you need to save $500 a month. Figuring out your goals and how you will finance them can be the best motivation for your personal financial success. Not to mention, once you realize what you are capable of achieving, this mindset can do wonders for your own mental health. If you have any questions about personal finance, feel free to contact us. Hope you and yours have a great New Year!
Additional Resources: 2019 To-Do by Two Cents