A new year brings new goals and resolutions, and it is a perfect time to plan for the year ahead. So often, people make big, unrealistic goals that they won’t be able to carry throughout the year. I’m here to tell you that there are very minor changes you can make to set your year up for success, and to help you save more and spend less. Below are 4 financially smart things that you should do this January (and every January) that will allow you to have more control of your finances. I have personally done all these things within the last two weeks—so I promise you, it is possible!
1. Increase your savings by 1% of your salary.
The first thing you should do this year is increase your 401(k) savings by just 1%. If you are currently contributing 10% to your 401(k), up it to 11%. You won’t even feel this tiny 1% adjustment. If you’re already maxing out your 401(k), or if you don’t have a 401(k), I challenge you to increase your savings elsewhere by 1% of your salary. You could increase your savings to a Roth IRA, brokerage account, 529 plan, etc. I recommend this savings tactic to everyone I work with, and I personally do this with my own savings every January. This is a great way to get in the habit of increasing your savings every year without completely disrupting your cash flow. If you’re currently in retirement, don’t worry about this step, you can skip to the next 3.
2. Have a financial meeting to lay out your goals for the year.
I recommend that you take an hour out of your month to dedicate yourself to your finances and the year ahead. If you have a partner, do this with them and sit down together. If you don’t, have a financial meeting on your own. Go to your favorite coffee shop, get a fancy latte, and make it special. My husband and I did this last weekend and it was informative and motivating, so I am talking from personal experience when I recommend this. During your financial meeting you should do 3 things:
- First, write down all of your inflows and outflows. Make a list of all of your monthly inflows. This can include paycheck, bonuses, commissions, rental income, RMDs, etc. Next write a list of all the ongoing expenses that come out each month. Examples of this are mortgage or rent, water and utilities, cable and internet, daycare, subscriptions, gym memberships, car payments, loan payments, phone bills, etc. This really shouldn’t take too long; it took us about 20 minutes. Once you do this, subtract all your outflows from your inflows. This will give you an idea of what you have left to spend or save. Does it feel realistic? Are you content with your spending? Is there a subscription or expense that you could drop? This is a way to quickly analyze your cash flow and understand if you are spending within your means.
- Next, write down all the large expenses you have for this year. You don’t even have to write down the amounts of these, just make a list of everything up coming for the year. Consider all the trips you have, home projects, entertainment (concerts, ski passes, etc.), car maintenance, and more. To use my experience as an example, we made our list and we have three weddings, three bachelorette parties, a family trip, a couple’s trip and hopefully a bathroom remodel. After you make your list, mark the expenses that are non-negotiable and the ones that could be delayed if necessary. This practice will get you in the habit of planning ahead and not making impulse purchases.
- Finally, make a list of your savings goals. Once you have looked at your cash flow and all the necessary big expenses you have for the year, lay out what you want to save throughout the year. When goal planning, I always recommend that you make sure your goals are definable, measurable and achievable. To give you an example, first define your goal. I want to save 20% of my income this year. How will I measure this? I will track my savings on a monthly basis using a simple spreadsheet. I plan to save in my 401(k), Roth IRA, 529 plan and brokerage account. Is it achievable? Can I actually save 20% of my income or is this not realistic? Ask yourself all these questions to make sure your goals are productive for you.
Close out your financial meeting by recognizing all the good things you are doing for your future. Be proud of yourself for setting goals and starting this year off strong!
3. Download your year-end credit card statement.
It’s pretty common for people to not know their yearly spending, so I’ll share a secret with you. Simply download your year-end statement for a quick and dirty way to know your spending. Not just the December statement, but most credit cards will actually have a complete year-end statement of everything you spent that year and the total amount of spending. Of course, this will only show what you spent on your credit card, so add in things that come out of your checking account or that are spent elsewhere. Understanding your spending is one of the smartest things you can do for your finances, so start with the quick and dirty way.
4. Commit to eliminating or reducing just one expense.
The last thing I want you to do is at the end of your financial meeting and after you’ve looked at your expenses, decide on one thing you want to eliminate or reduce. If you’ve heard of the latte factor before, you know that there is something you could eliminate, like those pricey lattes, and over time you could save thousands and thousands of dollars. I have one problem with the latte factor; fancy lattes give me so much joy! I’m not willing to get rid of my lattes, and I’m not recommending anyone get rid of something that brings them joy. But is there something you are spending your money on that isn’t giving you joy? Or is there an area that you can reduce? Is there a monthly subscription it’s time to ditch or a gym membership that you just aren’t using? Consider something, even if it’s just the price of a $6 latte.
My husband and I talked a lot about this and we went back and forth a lot. After looking at our year-end statements and having our financial meeting, we found that we spend a lot of money on going out to eat, like so many people. We discussed trying to go out to eat less or eliminating it all together. But that didn’t feel right, or realistic. We love the occasional date night or a cozy Saturday night takeout. Ultimately, what we decided is that we want to continue going out to eat, because it gives us joy, but we could cut back a little by completely eliminating ordering appetizers. We are guilty of loving a good starter at a nice restaurant, which can add up to $20 to our final bill! Making the decision to eliminate ordering appetizers while still enjoying the treat of going out to eat felt really good to both of us. Consider our experience and try to find something that you and your family can eliminate, without missing out on something you love.
Before the end of January, I challenge you to do every single one of these four practices. I did it. It took me one hour to do all of this. You can find one hour this month to commit to your future and year ahead. And remember, minor adjustments can make major improvements for your future.
Alana Macy, CFP®
Wealth Advisor
