You’ve been promising yourself each January that this is the year you’ll finally get your financial situation in order. And you start out each new year strong, but after a few short months, your motivation fizzles out. By the time you resurface with renewed motivation, your finances are worse, making the task ahead more overwhelming than ever.
Instead of resigning yourself to old habits, shift your perception of what financial improvement can be. Audacious goals of saving twice your income in a couple of years have no place in your new plan. This year, you’ll focus on achievable objectives you can stick with well beyond December 2024.
1. Come to Terms With Your Financial Situation
Facing reality is one of the bravest things you can do. When it comes to your finances, learning the truth about your debt, credit score, and savings balances is essential. Without a clear understanding of your standing, you can’t know where to start.
According to Chime, some people may forget to include raising their credit score when they try to improve their finances. That’s shortsighted, as your credit score determines everything from whether you’ll qualify for a credit card to how much you’ll pay for a loan. Get familiar with the factors that make up your credit score and incorporate financial moves that support a strong score.
Set a meeting with yourself and anyone you share finances with and put it all out there. Get into your accounts to view balances, amounts owed, and credit information. Resist the urge to dig into conversations about problem areas at this point. Instead, just focus on the facts as you lay the groundwork for your financial plan.
2. Prioritize Your Goals
Now that you know where you stand, it’s time to rank your goals. This step may incite many emotions, but do your best to focus on the task at hand.
Depending on your situation, consider the impact that improving each area will have on your life. If you’re struggling to pay bills on time, a manageable budget may rank high on your list. If you have school-age children, college savings may move to the forefront. Customize your list based on your needs and what a good financial situation looks like to you.
Strive to capture your full financial picture as you create your list, looking toward the future and projecting what you can. If your home is in need of a new roof, consider adding a savings goal to your list. Likewise, if you anticipate a life change like adding a child, review the impact on your budget and long-term plans.
3. Find a Budget Style That You Can Stick With
Budgets are non-negotiable, even for those with enviable incomes. If you don’t know where your money is going, it’s unlikely you’ll achieve your financial goals. Management theorist Peter Drucker famously stated, “What gets measured gets managed,” and your budget is no exception. While digging into your financial habits can be eye-opening and often uncomfortable, it’s an important part of managing what’s yours.
Finding a style that works for you can feel daunting, but there are a variety of approaches to consider. Investopedia’s budgeting and savings library offers resources on budgeting styles, money management tools, and more.
If you can’t live without detail, consider a zero balance budget. Here you assign a purpose to every dollar, down to the very last greenback. For a more flexible approach, break your budget into spending categories using the 50/30/20 approach. In this method, you have just three buckets for managing essentials, wants, and financial goals.
4. Learn Your Financial Blind Spots and Solve For Them
Chances are, your financial challenges have been plaguing you for years. Now is the time to take a hard look at your habits and identify your self-sabotaging trends. Some people find balancing their budget to be a major stressor. Money management experts agree, however, that ignoring your finances is a recipe for financial ruin. Instead of sticking your head in the sand, get creative and find a solution that works for you.
Look into free or low-cost digital financial aggregators that give you an at-a-glance view of your total financial picture. Set up spending categories that align with your budget to keep track of your spending. If online shopping is hard for you to manage, set up spending alerts when you get close to your limit. This way, you’ll get a nudge to slow down and course-correct before you blow your budget.
5. Celebrate Your Progress to Reinforce Behavioral Change
Trudging slowly toward a financial goal can be demoralizing, especially if you’re digging yourself out of debt. As you launch your renewed financial management plan, set milestones to help you stay motivated. Once you achieve them, treat yourself to a reward that suits your style.
A sushi boat may be the reward that helps you stay on track with incidental spending. Perhaps a mini spa day will encourage you to stay away from mindless online shopping. Or hitting a savings goal in your emergency fund can be rewarded by an evening at the driving range.
Build a reward plan just as you set up your financial plan. When you have financial rewards and feel-good rewards on the horizon, you stand a better chance of achieving your goals.
Create Positive Financial Habits Over Time
Behavioral change is hard, especially when it’s on you as an adult to both do the work and reinforce boundaries. On average, it takes a couple of months to make new habits automatic, so give yourself grace while working toward your goals. If you slip up, forgive yourself and get back on track as soon as you can. After all, two steps forward and one step back is still progress in the end.
Create visual reminders of your progress by posting your achievements in an area you see regularly. A tracker on your refrigerator, celebratory notes in your planner, or a sticky note on your monitor can be motivating. After months of hard work, you’ll find yourself in a better financial place. Plus, you’ll have good financial habits to carry you forward to your next goal.