Peering at your financial flaws is a lot like trying on a new swimsuit in front of a 360-degree mirror – you probably won’t like everything you see. But if you are serious about trimming the fat from your spending and making this your best financial year ever, you must take a long, hard look at your finances. Unfortunately, many of the most common financial resolutions don’t add up to a well-proportioned financial picture. In fact, many resolutions are bound to fail by design. Find out which ones you should avoid making, and how to make resolutions that will succeed.
1) Save more, spend less
This is a very simple resolution – especially in the first part of the year, when many people are still working to pay off Christmas debts. But much like a resolution diet often crumbles under the pressure of a pretty dessert tray, a resolution to “save more” often bows to temptation as well. Why? This resolution is just too vague. If you really want to rearrange your spending, you need a plan. First, start by pulling out your bank and credit card statements from the past year. Next, be appalled at how much you spent at Starbucks, on restaurant meals, and at Lululemon or (insert fine retailer of your choice here). Now it’s time to decide where you’ll cut back, and by how much. Then, set up an automatic withdrawal to get that cash into a savings account before you can spend it. There now, doesn’t that feel better?
2) Get out of debt
This is one of the most common resolutions – and one that is commonly broken. Getting out of debt rocks; it leaves you with money to put toward savings and investments, and ensures that your phone calls will be with travel agents, girlfriends, handsome suitors, or even your mom - not with debt collectors. It also means a whole lot more freedom to make better financial choices, rather than being bound by your repayment obligations. Unfortunately, you can’t get out of debt just by wishing it. In fact, if you have a lot of debt, the process is probably going to be pretty painful and unless you have a knack for self-deprivation, it’ll take longer than a year. If you really want to make this kind of resolution work, figure out how much debt you can reasonably pay off in a year without incurring more. Then work out a plan that will help ensure that money actually goes towards your debt repayment each month. Voila!
3) Learn about investing
Resolving to learn more about investing and the markets is a great resolution, but if you haven’t picked up a book about this topic before, chances are you won’t do it now – and if you do, it may bore you to tears. But there’s a not-so-secret motivator that pushes regular investors to stay informed and learn more about the companies they invest in: money. Reading about someone else’s money isn’t nearly as interesting as watching and learning with your money. This doesn’t mean you should invest your life savings in the stock market, but if you do want to get into stocks, consider choosing a couple of your own. Then start reading about how the markets work. You’ll be a lot more interested in watching your own money in action. And be sure to invest an amount you can afford to lose; it’s those losses that hold the biggest lessons.
4) Make a budget
This is another common financial resolution that often gets forgotten. Setting up a plan to track how you’re spending your money without any idea of what you’re going to do about it is a lot like waiting for the bus when you don’t have anywhere to go. The reason a budget is important is because it helps ensure that your money is going toward your financial goals. Set those goals first and then use your budget as a roadmap to help you get there.
5) Save for retirement
Although saving for retirement is an important financial goal at any age, it may not be top priority for everyone. For example, if you have big debts to pay off, you may benefit by pouring your focus into those and into setting up an emergency fund. Once you get these two areas under control, you’ll be ready to save for retirement. If you plough all your money into a retirement fund before you manage your debt and build up your savings, you may be tempted to dip into it to make ends meet, which could be disastrous for your finances.
So, what’s a good financial resolution?
Making good financial resolutions is all about choosing goals that are not only realistic and attainable, but that also hold you accountable. If you choose goals that are specific and that include a plan and a few stepping stones for how to get there, you can set yourself up for a richer year ahead!
GoldenGirlFinance.com is a free personal finance and education site for women.
Nothing contained herein is intended to provide personalized financial, legal or tax advice. Before implementing any financial strategy, you should obtain information and advice from your financial, legal and/or tax advisers who are fully aware of your individual circumstances.