As another new year and another decade begin, many are setting new financial goals for themselves.
Though many have already given up on their New Year’s resolutions by the start of February, there are plenty of ways to help yourself keep on track.
Whether you’re looking to start saving up to buy your first home, looking to pay down debt or simply trying to create better spending habits, here are some tips from financial experts to help you do just that.
Make it emotional
“To me, in life, whether that’s fitness, health or money, it feels like it has got to be emotional and not mechanical,” said Erick Arndt, a financial adviser at Virtue Wealth.
Though both emotion and habits play a significant part in your actions, it’s emotion that gets you to take action, according to Arndt.
“The right habits get us through the casam or the bump, but emotional charge helps to keep that going,” Arndt added. “The year is going to come and go, but little things add up.”
Figuring out why you are creating these financial goals will help to put the right habits in place, until it becomes almost unconscious, he said.
Patti Handy, a senior mortgage advisor, agreed, adding that though it can be hard to make that mindset shift, it’s important to have that why tied to emotion.
“Whether it’s because you want stability, peace of mind or to be able to give back, it has to be something that’s a trigger for you,” Handy said. “When you get into that mode of wanting to spend more, you’ve got to be able to stop and say, ‘Wait a minute.’”
Handy said it also helps to have it written out and posted somewhere so you don’t lose focus.
Figure out where your money is going
“The first step is to look back at 2019 and see where your money went,” said Jerrod Ferguson, vice president at Vance Wealth, adding that information is power. “Lots of credit cards and banks give annual statements, so getting that information shouldn’t be hard.”
Though simple, this can be an eye-opener for many, as it is often overlooked, Handy said.
With that, he, Arndt and Handy suggest creating a spending plan by using your 2019 spending as a basis.
“A budget has a sad, depressing connotation, but a spending plan is exciting,” Arndt said. “It’s similar to a budget, but it’s a license to spend money, which you can’t do without a plan otherwise you run yourself into a ditch.”
This way, you can decide exactly what you want to be spending your money on.
“Don’t look at budget as something that’s restrictive, look at it as cash flow, because at the end of the day, that’s what it really is,” Handy added.
Though creating that plan is important, taking a pulse on a regular basis and continuing to keep track of your spending is more important as it can help drive future spending decisions, Ferguson said.
Ferguson also suggests getting an update on all debts and accounts, including investments or retirement funds, as well as on your credit report, which are offered free every year by each major credit bureau.
Learn to live below your means
Arndt compares living paycheck to paycheck to running a car at 5000 rpm continuously.
“Eventually, it’s going to crash,” he said. “Just like you can’t spend 100% of what you earn.”
Though the goal is to save 20% of each paycheck, Arndt suggests starting with $25 and working your way up.
Similarly, Handy suggests paying yourself first, meaning saving first before paying your debts, which she said is a habit of the wealthy.
“Have it automatically go from your checking to wherever you want to put that money to go to work for you is crucial,” she said. “Until you have some breathing room, that’s important… because life happens. It brings a sense of peace knowing you have a cushion sitting there that you can fall back on.”
Pay off debt
The first step to paying off debt is sitting down and evaluating your finances in order to figure out what’s causing you to be in debt, said Greg Mahnken, a credit industry analyst at Credit Card Insider, and both Arndt and Handy agreed.
“Take steps to improve your habits and situation so that you don’t end up in the same spot down the road,” Mahnken added.
Whether you choose the avalanche method, where you allocate any extra cash towards paying down the loan with the highest interest rate, or the snowball method, where you put that extra money towards the smallest balance, you must first ensure all of your accounts are in good standing and that you’re making all of your minimum payments, according to Mahnken and Handy.
“Eventually that bill is going to go away,” he said. “Now, roll that minimum payment and extra cash into the next balance.”
Each method has its upsides, but regardless of which you pick, avoid spending on accounts while trying to pay off debt, as it’s easy to nickel and dime, but really eats into your progress, Mahnken added. If this is hard, Mahnken suggests putting your card in a safe.
Those with large amounts of debt on a credit card with high interest rates may also want to consider trying to negotiate a lower rate with their borrower or a balance transfer, which is basically paying a credit card with another credit card with a fee, according to both Mahnken and Handy.
“Fees are often cheaper than the interest you’d be paying, so do the math first with fees in mind to ensure you’ll end up saving money,” Mahnken said. “Also, read the terms of your card, as often, making a late payment could cancel your offer.”
Invest in yourself
“The best investment I’ve ever made is me,” Arndt said. “You earn more the better you are at what you do, so keep learning, take a class, read a book… You’ll be simply blown away of where you are at by 2021.”
Arndt also suggests learning about money, as it may cause you to start looking at money differently.
“You learn about money from family and are subconsciously picking up those tips and repeating those same habits,” he added.
Keep your goals reasonable
Both Ferguson and Handy also warn to avoid biting off more than you can chew.
“Pick two (goals) and focus on that,” Handy said. “You should also be a little kinder to yourself. If you slip and things don’t work out, don’t beat yourself up, just pick yourself up and stay motivated.”
She also suggests confiding in someone you can speak openly to to help you stay accountable, whether that’s a friend, family member or financial advisor.
