For many, 2015 was not a good year as people continued to struggle with debt, whether it be credit cards, medical bills, or student loans. Every single day this year, someone reached out to me with a debt collection issue and downloads one of my books about debt collection, bank levies, or student loans. I am sure that they are all hoping for a better 2016.
Since this is the holiday season, as we approach the new year, people are making resolutions for 2016. Not surprisingly, statistically speaking the #2 and #3 resolutions are to “get organized” and to “spend less and save more.” Unfortunately, only about 8% of them will succeed.
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But these are general goals, and the better way to do it is to be specific about how you are going to do this and to break it down into smaller steps. Here are some ideas for 2016 resolutions that might just do the trick to give you a better financial future in the new year.
Make a Budget
This is the biggest thing. The vast majority of Americans do not have a budget, which means that they have no clear idea of how much money comes into the household and how much gets spent. This often leads to higher credit card debt, as people send more than they make, so they carry debt.
So the first step here is to measure your 2015 cash flow. In January, take a look at your last paycheck for the year. It should show a year to date total net income. Divide this by 12 to see what your monthly take-home pay is on average.
Then go through your credit card statements and checkbook to see what you spent on different expenses. To help you make sure you cover all of your expenses, download this monthly expense sheet here. It is extremely important that you be as accurate as possible here. Do not guess. Again, total them up and divide by 12 to get a monthly average.
Finally, put all this together in a spreadsheet showing total money in and money out, and more importantly, the difference between the two. If income exceeds expenses, good for you! I have a resolution below on what to do with that money. If expenses exceed income, then you have identified a problem that needs to be fixed, which leads to another resolution below.
If you have a surplus of income over expenses, then take a moment to pat yourself on the back. You have overcome the first hurdle to financial freedom. But what to do with that money? Well that depends on how much is left over, but here are some ideas in terms of priority:
- Put some of it into a savings account. Having a money buffer will help you keep to your budget and not be derailed by unexpected expenses. This is an emergency fund, not a “treat yourself fund,” so only use it in emergencies.
- Put some of it into an IRA. Long term financial freedom includes retirement. Even if your employer has a pension that you contribute to, do some planning of your own and set some money aside. There might also be some tax advantages, so talk to an accountant and a financial planner.
- Put some of it towards vacation and Christmas/Chanukah. After creating a financial buffer and planning for retirement, go for a little quality of life. Giving yourself something out of it will reward your hard work and discipline will help you to stick with it.
I am sure that you can come up with some more ideas after that, but these top 3 should help you stay on an even financial keel.
If you are deficit spending due to expenses exceeding income, then naturally, you need to cut expenses. Try to identify the money leaks and address them as soon as you can. Don’t try to tackle too much all at once (maybe go for reducing one expense per month) or you will become overwhelmed or discourages.
In preparing your budget you might be surprised at how much you spend in a particular area, and identifying that is often most of the battle. Just resolving to spend less on meals out (or pizza delivery) could have an impact. But for the tougher nuts to crack, here are some ideas.
Track Your Spending
Your budget will not hold up through December if you do not keep track of how you are doing. Use a spreadsheet or a program like Quicken to track your spending each month. Are you staying within budget or going over? The sooner you see a problem developing, the sooner you can take action to address it.
Along with “Spend Less and Save More” there is “get organized.” If you feel more in control of your life, financial or otherwise, you will be less stressed and not feel overwhelmed. So my advice here is to read a book. More specifically, I think you should read Getting Things Done by David Allen and check out his web site. Take it step by step, and bring more order to your life.
So that’s it for new year’s resolutions. I hope you are able to make a difference in your lives in 2016. If you have your own ideas on how to cut spending or spend surplus income, please be sure to leave it in the comments.
Also, please let me know how things went for you and any successes or bumps in the road you have had. As a famous Canadian once said, “I’m pulling for you; we’re all in this together!"