January is just around the corner. It’s the time of year when we start to think about fresh starts, new beginnings, and goals we want to achieve. Most of us focus on health and fitness goals, relationship goals, and even travel goals, but now is the time to start looking at our finances.
Back in May, I introduced the mid-year financial checkup to help you assess where you were with your money goals… and what changes you needed to make to achieve them. It’s now time to get back on track and end the year strong.
Here are some simple ways you can give your money a makeover
Create a Budget
You’ve heard it before and I’m here to tell you that there’s no real way around it. To truly know where your money is going, you have to create a budget. Being able to see what you have coming in versus what’s going out, is essential to your ability to better understand what you need to do to improve your financial situation.
There are general guidelines on how you should allocate your income.
For example –
- Needs should equal 50% or less than your after-tax income
- Wants should equal 30% or less than your after-tax income
- Savings should equal 20% or less than your after-tax income
When you read these guidelines and think about your finances, how does your current allocation measure up?
It’s okay to not be perfectly on track with this model. What’s important is that you took the time to evaluate your expenses. Most people are shocked to see where their money actually goes each month.
This guide is not a one size fits all. It doesn’t work for everyone. Make modifications where necessary.
For example, you may be currently allocating 15% of your income to debt repayment and only 5% to savings, because your current goal is to be debt free.
The objective is for you to take a hard look at your ‘needs’ and have a better understanding of what it takes for you to maintain your lifestyle. The next priority is making sure that you “wants” aren’t dominating your budget and keeping you from reaching your goals.
If you’ve been in debt for a while… you can start to get used to it. It starts to feel like the norm and minimum monthly payments become a permanent fixture on your budget. Eventually, there will come a time where you’ll start to realize that you’ve accumulated much more debt than you’re comfortable with. Whether that debt comes from unexpected emergencies or mindless spending… it will start to weigh you down.
If you’re starting to feel overwhelmed by debt, whether it’s $500 in medical bills or $50,000 in student loans, you don’t have to be comfortable with this burden. A little planning and focus mixed with a debt-free mindset and intentional spending and you’ll be on your way to eliminating debt from your life.
Tip: You may want to consider a debt consolidation loan or a credit card balance transfer (to a card with 0% interest). A debt consolidation loan essentially allows you to pay off all of your credit card and loan balances (there are some exceptions) and consolidate the total amount owed into one loan, with one monthly fixed payment. A credit card balance transfer allows you to transfer the balances from high-interest credit card accounts to a new credit card with 0% interest. If you’re considering either, do your research first. Understand the repayment terms of a consolidation loan and use a site like https://best.creditcard to find the best balance transfer credit card option for you.I've you've been in debt for a while... you can start to get used to it. It starts to feel like the norm. Click To Tweet
Having a savings plan helps your savings goals feel more achievable. Divide your goals into 3 categories: immediate, 12 months, and long-term. Then, prioritize them by importance. Tackle the necessities first (think: establishing an emergency fund and debt repayment). Add other goals like down payment for a home or international travel in the relevant timeframe.
It’s great to be ambitious with your savings, but it’s more important that you establish a budget you can stick to.
Now that you’ve assigned your goals to its applicable timeline, determine how much you need to save each month to meet your objectives. But wait… before you think it’s set in stone, take a look at those numbers. Are they realistic for your budget? Do you need to extend any timeframes or make adjustments?
It’s great to be ambitious with your savings, but it’s more important that you establish a budget you can stick to. Saving is like building a home: you start with a plan, created a strong foundation, and then work on the other details.
Tip: immerse yourself in knowledge. When you have a better understanding of how good managing your money is for your life, you’ll be excited about making the necessary changes to create financial freedom. Check out the other women and wealth posts on our blog and then visit sites like dailyworth.com and https://www.learnvest.com for more tips!It's great to be ambitious with your savings, but it's more important that you establish a budget you can stick to.Click To Tweet