You can usually guess someone’s New Year’s resolution because it often involves losing weight, getting into better shape, or cooking more nutritious meals.
Look, we’re not trying to throw shade. If those are your goals, they’re impressive. Drop those pounds, build that muscle, try Blue Apron—we’re with you.
But beyond getting healthier, what about getting wealthier? Every January, many people focus on their bodies but tend to overlook their financial fitness.
Financial fitness is a thing, and guess what? Having extra cash will make you feel just as sexy and confident as whittling your waistline. Get after these four New Year’s resolutions to start off 2019 with money on your mind.
1. Track Your Spending
Even if the days of panicking about overdrawing on your cash management account are behind you, it’s worth paying attention to exactly how much you spend. Why? “You know how much you make because it comes through your paycheck or from your customers, but if you don’t know what’s going out the door, then you don’t know how much you can save,” says Katy Song, a Certified Financial Planner at SoFi.
Tracking your spending may sound hard, but there are free online tools that make it easy. Song likes Mint.com because once you link your checking, savings, and credit card accounts it does the rest for you. Mint.com shows you—in a handy chart that’s categorized by color—what you spent in the last year, the last quarter, the last month, or the last week and what you spent it on (property tax, mortgage, car lease, bills and utilities, etc).
“It gives you an up-to-date, real-time snapshot of your finances,” says Song. “It’s especially helpful if you’re in a couple and you haven’t merged your accounts.”
2. Create a Budget
Budgeting takes a little time and effort, and it’s not always fun to face reality (like the fact that those Bruno Mars floor tickets uptown funked-up your credit card bill). But over time, it can help you feel calmer and more in control. The key is analyzing your “fixed” expenses (think: rent/mortgage, car payment, utilities, childcare) versus your “discretionary” expenses (think: restaurants, clothing, entertainment).
“The general vibe I get is: When people have more than 50% fixed expenses and less than 50% discretionary expenses, they feel like they’re just working to pay bills. They feel that pressure,” says Song. “When it’s the opposite, 30% to 40% fixed and 60% to 70% discretionary, those people have room to proactively reduce discretionary spending so they can save more toward their goals.”
So how do you get there?
First, see if you have any weaknesses in discretionary areas. Did you go way overboard on new outfits out last month? Consider giving yourself a spending limit in that category for next month.
Then look at your fixed expenses. “If you see a personal trainer and you don’t have a lot of time, he or she will have you focus on the major muscle groups. The same is true with your finances,” says Song. In other words, cutting out a $4 latte now and then won’t make a major dent, so look at the big-picture items.
Can you live somewhere else to lower your rent or mortgage? Can you cut back from two cars to one car, buy a cheaper car, or combine car insurance with your partner? Can you walk or bike to work instead of taking a bus, subway, or train?
3. Evaluate Your Debt
Let’s bust a common money myth right now. Is all debt bad? Nope!
Just like there are heroes and villains in Wonder Woman, there’s good debt and bad debt. A mortgage, for example, is often good because the interest rate is generally low (in today’s rate environment) and a home is an investment that may, hopefully, earn you money over time. Similar principles apply to student loans. Credit card debt, on the other hand, is often bad. It typically carries a higher interest rate and can sink your credit score, which can make it harder to do things like buy a home.
So channel your inner superhero, grab your magic lasso, and make a plan to deal with that bad debt, whether it’s paying it off ASAP or refinancing it. If you’re aggressively trying to pay off your “good” debt, think about whether that’s really the best use of your funds, or if you might be better off saving or investing for some of your other financial goals, like buying a home someday.
4. Set Yourself Up for Success
If you know that you should save more but you’re like, “I’m up to my eyeballs in student loans, I’m trying to buy a house, and my retirement portfolio is sadder than the latest album by The National,” we hear you.
Even if you’re not ready to save more right now, consider opening some savings or investment accounts anyway. “It’s about having the infrastructure in place. If you build it, they will come,” says Song.
This way, if you get a surprise gift, bonus, or class-action settlement, you can throw it into one of these buckets instead of your checking account. Consider automating a monthly payment—even if it’s just $10—to each account because you probably won’t notice a difference, it’ll get you into the habit, and you may feel motivated to increase the amounts once you see the money grow.
Is “start investing” one of your 2019 resolutions? Give us a shout and we can talk about different options available. Plus, get financial planning support from our advisors at no extra charge.
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