Hello, everyone! Welcome to my personal finance column, Cents and Sensibility, where I will provide weekly doses of sensible financial advice in fun and relatable ways. I promise this will be way more entertaining than reading the tickers on financial news networks. Those always make me dizzy.
Let’s start from the very beginning, which I’ve been told is a very good place to start.
On January 1, I, like many others, optimistically resolved to change my life for the better. I’ve decided I will stop coming in late to work and return my library books on time (punctuality is not my strong point). I’ve also decided that this is the year I start putting money away in a high-yield savings account. Hopefully, by the end of the year, I will have amassed a sizeable emergency fund that will come in handy when the Zombie Apocalypse hits in December. Underground shelters aren’t cheap, you know.
Financial resolutions are not always common. And like any resolution, they can be hard to keep (I’ve already been late to work thrice, for example). But making and keeping realistic financial resolutions can provide a great sense of personal satisfaction and instill good habits that will keep your bank account on the up and up. Here are a few tips to find a reasonable resolution that you can stick to:
1) Assess your situation – You can’t determine a proper end point without first figuring out where you are. Take a look at what you owe on your credit cards and loans and how much you are paying each month in interest (it should tell you on your monthly statements). Compare that to how much money you have saved and/or are making. You may also find it helpful to pull your credit report. You are entitled to a free credit report from all three credit bureaus each year, which you can access safely at www.annualcreditreport.com. Once you know where you stand, it will be easier to assess what is possible for you this year. If you have a less-than-stellar credit report and a lot of debt, this is obviously not the year to look into purchasing real estate. Maybe you can start increasing payments on your debt based on your income. Or maybe you have excellent credit and no debt, and this is the year to start saving for retirement. Either way, clarity will come once you see what you are working with.
2) Be honest about your spending habits – If you know you love to travel and have no intention of giving up that hobby, be realistic about your saving habits and work your travel into your budget from the beginning. Or perhaps you are willing to sacrifice that Euro Trip for something more local if that’s what it takes to buy a new car and still have your daily latte that you just can’t do without. There is no sense in making drastic lifestyle changes that you can’t maintain. That will only make you frustrated and potentially give up your resolution altogether. If your resolution requires you to make sacrifices, examine what your priorities are and make your cuts from there.
3) Create a concrete plan – Like many goals, measurability is key. And the great thing with financial goals is that it’s all math. You don’t have a lot of room for ambiguity. Rather than saying that you are going to “save a TON of money this year”, look at your expenses and find a solid number that works for you. I have found www.Mint.com to be very helpful with creating a financial plan. You can link all your accounts and loans to your profile, and Mint.com tells you how much you have left over to commit to your goal. It even has a cool slide-adjustment feature so you can relate the amount you have to save each month to accomplish your goal by a certain date and vice versa.
4) Stay committed, but be kind to yourself – When it comes to any goal, a large part of achievement boils down to pure commitment. You just have to do it. Stick to your budget. Set up automatic payments if you have to. You have much more willpower than you think, I promise. And if anything, visualize yourself ringing in 2013 with your resolve intact.
Obviously, every year has its unexpected events, whether it is a bonus or unexpected expense. Poet Robert Burns once said that even the best laid plans of mice and men can often go awry. Be easy on yourself and don’t give up. Adjusting your resolution and your game plan isn’t failure, it’s being flexible.
I know resolutions are tough. And if you’re easily distracted by fruity cocktails and dresses Betty Draper would wear (like me), money-related resolutions are even tougher. But starting another year in better financial standing than the last is a great feeling.
And for extra motivation, if you succeed, you are totally welcome to stay in my underground shelter. It’s BYOBB (Bring Your Own Baseball Bat, but any weapon effective against zombies will do). I’m on a budget, after all.