Next to physical health, getting financially fit tops many New Year’s resolution lists every year.
If getting your finances back on track in 2020 is one of your main goals, use some of these tactics to make your wallet happy.
Have a budget – seriously
How can you know what’s going on in your financial life without an intimate understanding of your cash flow? That means knowing exactly how much is coming in versus how much is going out.
The answer? You can’t.
Kick off 2022 on the right foot by starting a budget. At the very least it’s important to know your cash flow and focus on only spending what remains after you pay your fixed expenses, taxes, and put some money into savings.
Create an action plan for your debt
It can be easy to fall into a paycheck-to-paycheck cycle, leaving you unable to pay down debt. If you’re currently stuck in this cycle, you need an action plan.
A great one to try is called the “debt snowball.”Author and Radio Personality Dave Ramsey often discusses this strategy.
Start by writing all your debts on a sheet of paper. Include the total balance, monthly payments, and interest rates for each.
Next put the debts in order from the smallest amount owed to the largest.
- Credit Card A: balance: $300, minimum monthly payment: $25, interest: 18 percent
- Credit Card B: balance $700, minimum monthly payment: $50, interest 21 percent
- Student loans: balance: $15,000, monthly payment $200, interest 6 percent
Then crunch your budget to see how much you can feasibly put toward your debt each month. Any amount you have available over the required minimums due should go toward the smallest debt first. Dave Ramsey says you can ignore the interest rates if you follow this plan.
Using the example above, $275 is needed to pay the minimum due on the debts each month. But, let’s say after some number crunching, you realize you can put a total of $300 toward the debt.
In this case, you would pay the extra $25 to Credit Card A for a total payment of $50.
Once Credit Card A is paid off, take that $50 and put it toward credit card B for a total payment of $100.
When Credit Card B is paid down, put the $100 toward the student loan payment – hence the name “debt snowball”.
Start meal planning
Bringing your lunch to work and scaling back on eating dinners out are tried-and-true ways to keep some money in your wallet. However, the only way to set yourself up for success is by meal planning.
Before grocery shopping, plot out exactly what you want to eat that week, write a list of the items you need, and only buy the necessary ingredients. Following a plan will help you stick to a budget, minimize food waste and keep you focused in the grocery store.
It’s also a good idea to avoid shopping while you’re hungry! If you peruse the aisles on an empty stomach, you’re more likely to reach for items you wouldn’t normally buy.
Bonus points: take this a step further and do some bulk cooking during the weekends. Prepping a few crock-pot meals to throw in the freezer will offset a budget buster on those nights when you come home late, tired from work, and are tempted to order in pizza.
Pay yourself first
Whether you receive a paycheck weekly, bi-weekly or monthly, make adding money to your savings your first priority.
The best method to follow is to automate a percentage of your paycheck to immediately deposit into your savings account before it hits your checking account.
If you’re a freelancer, try saving 40 percent of each paycheck and setting aside 30 percent for taxes. If 40 percent seems a bit steep at first, start at 10 percent and slowly increase the amount each month.
In addition to automating your savings, double-down on your efforts by using new apps like Digit.
Using an algorithm to monitor your spending habits, Digit pulls small amounts of money out of your checking and moves it into savings every two to three days. It’s a mindless way to save even more.
Open a savings account at a different bank than your checking account
The old “out of sight out of mind” adage can help you stick to your money goals.
To start, set up a savings account at a new bank so you don’t see your savings each time you log into your checking account. This can help minimize the temptation to move a little bit over at a time to subsidize overspending.
Contribute to an employer-matched retirement plan
If your employer offers an employer-matched retirement plan, contribute enough to at least get the match.
If you’ve been contributing that amount – good job! Now, challenge yourself and increase your contribution by 3 percent. You’d be surprised by how much the change goes unnoticed.
Create a “Fun Fund”
Whether you’re trying to slay debt or are totally flush with cash, a “Fun Fund” is a great way to allocate resources to little (or big) indulgences without sacrificing your financial goals.
Just be sure you only allocate a modest amount of money – perhaps $50 per month – toward your Fun Fund if you’re also working to pay off debt. The perk of having a Fun Fund while you’re in debt repayment mode is it negates some of the potential deprivation you may feel from being on a restrictive “money diet”.
Keep checking in on your resolutions
Whatever you decide your 2022 financial resolutions are, be sure to check in on your progress periodically.
Continual checkups are a great way to stay on track – and serve as proof that your smart decisions are helping you reach your money goals.