Chances are, you’ve seen the Bill Murray movie where he relives Groundhog Day (hence, the title) over and over again. He repeats the same day until he learns a valuable lesson. One that will change the course of his life and help him achieve his most precious goals.
Well for If you’re like most people, New Year’s is quite a bit like Groundhog Day. Especially when it comes to money and finances.
Every year, you promise yourself you’ll make massive changes for the better. You go into the year full of gusto but sometime between Groundhog around Valentine’s Day things start to go a bit, shall we say, askew. And then the self-loathing sets in and you’re back to reliving your old ways. Spending, charging and racking up debt like you did the previous year. You’re not alone. Not by a long shot!
The problem is most people try to do too much all at once. And don’t plan or strategize how they’re going to achieve success. Or how they’re going to handle set-backs. They just jump in — headfirst. And ultimately, land that way, too.
This Year, Resolve To Give Yourself A Break
Let’s be honest. Change is hard. Even when it’s good for you. We should know. We’ve been helping people change their relationship with money and finances for years. And we’ve learned that the people who are most successful in adapting new financial behaviors and making lasting, positive changes all have one thing in common: A reframed outlook on what they’re doing and why they’re doing it.
It’s All A Matter Of Perspective
Instead of thinking in terms of what they “can’t spend their money on, the dinners they can’t go out to, or the weekend getaways they can’t go on,” our successful Banktivity customers focus on what they’re saving towards. The changes they’re making are so they can buy that first home. They can get a new car. They can renovate the sewing room to become the new baby’s room. They can retire when, where and how they want.
They also don’t talk in terms of giving up anything but reprioritizing their money and energy towards things that have greater meaning and value to them.
And before you think they’ve completely embraced a monastic lifestyle and forgone all earthly pleasures, let me assure you, these people still enjoy an occasional dinner out with friends. Movies with the kids. A trip to the beach and the mountains. It’s just they plan these events with more mindfulness, understanding the implications of their financial choices today and in the future.
Five Simple Steps To Start You On Your Way
Step 1. Look at the big picture
Time to break out the bank statements or tap on your mobile banking app. You’ll see what’s coming in (monthly deposits in the form of paychecks, investment income and the like). On a sheet of paper, write that INCOME amount down.
Now, take a look at what’s going out. Debits, is the technical term. You should see all your regular household bills. Rent/mortgage, utilities, cable/satellite, insurance and the like. Now write all those amounts down and subtract that amount (DEBITS) from your INCOME. And then you’ll see the remainder. That’s the amount you have left each month for the rest of your budgeting goals — savings, retirement and discretionary purchases.
You may be surprised, even shocked, to see how much is going out and where and how often. If that’s the case, don’t be hard on yourself. Many people have no idea how many mindless purchases, ATM visits and the like they make every month. The key is to notice the patterns, and strategize what you want to do about those.
Step 2. Pay down/off credit card debt
You had an amazing holiday season. You finally got to spend more time with more people. Such a joyous time was had. Hold tight to those feeling and memories. Because very soon, the credit card bills for all those holiday tidings and celebrations will be arriving soon. Again, don’t beat yourself up for what is done. Let’s just be done with these high interest bills as soon as possible.
You want to make every effort to pay much more than the minimum required. Credit cards carry some of the highest interest rates. And that’s money better spent towards your important medium to long-term goals. Whereas instead of paying exorbitant fees, your money is growing and earning interest.
Step 3. Take advantage of tax-benefitting retirement accounts
An Individual Retirement Account (IRA) is a great way to save for the future and lower you current tax liability. All the money up to the allowable limit ($19,500 for tax year 2021) is completely income tax-deferred. You won’t have to pay taxes on it until you withdraw it later, when you’re retired. And by that time, you should be in a lower tax bracket, so your liability will most likely be lower. So you want to be sure to try to invest as much as possible — if not up to the maximum allowed.
If your employer offers a 401(k) — another great tax-deferred retirement savings account — you’ll want to be sure to take advantage of that benefit. All your contributions are tax-deferred and they’re automatically taken from your paycheck. So you never see the money, and can’t be tempted to spend it elsewhere. Also, many company-sponsored plans include a match. That is, the company commits to matching up to a certain percentage of your contributions. And that adds up to FREE money in your retirement account. So you’ll want to try to contribute as much as you can to maximize the match.
Step 4. Make your first new financial goal an emergency fund
The number one cause to throw even the most-committed of us off course towards our financial goals is an unexpected setback. A leaky roof. A blown transmission. A failed water heater, washer, dryer. You get the picture. And it isn’t good.
Without a stash of handy emergency cash close by, most of us have little choice but to pull out a credit card. And for a major repair or replacement, that can be many months — even years — of high interest payments. Worse, once that habit of making minimum payments is re-established, it becomes easier to rationalize other (more enjoyable) purchases and just keep paying the minimum.
So look again at your budget. Can you comfortably or relatively-comfortably start socking away $50 or $100 a month in case of emergencies? Many financial planners recommend having at least $2000 saved exclusively for emergencies. It’s not fun, we get it. But you’ll be glad you did when the time comes. Because just like there’s always another New Year, there’s always another surprise financial bill.
Step 5. Plan for occasional set-backs
We’re only human. We’re bound to make a mistake and slip up. An impulsive buy. A decadent splurge. It happens. And when it does, see it for what it is. A minor bump on the long road to a better financial way of life. You’ll get there. We know you will.
How can we be so sure? You’ve read this far. So we know getting your house in financial order is a top priority. And Banktivity is happy to help any way possible.
We even offer a free, 30-day trial of our comprehensive suite of financial planning tips, tools and insights. If nothing else, be sure to check out the Envelope Budgeting feature. It’s a simple approach you can apply to setting up your household’s budgeting, whether you use the app or not.
Happy New Year!