How To Set A Personal Finance Goal As A New Year Resolution
If one of your New Year resolutions as a mom is to handle money better, a good place to start would be to improve your personal finance habits.
If your finances are far from where you’d like them to be this could be a scary idea — but, imagine for a moment what would happen if you actually got good at personal finance. It could change your life for the better in a rather dramatic way. Instead of stressing about how to pay your bills each month, you would never have to worry about having more month than money. Your mind would be free of the anxiety that comes from spending more than you can afford or the guilt that comes from frittering away any financial bonuses.
So how do you start? Here are 5 ideas to manage your money better in 2017:
- Make a list of educational resources.
Personal finance is part art, part science. It’s an art in the sense that you have to make intuitive decisions on how to spend your money wisely. It’s a science in the sense that there are specific principles you need to follow. In the same way, that science is based on laws of nature, personal finance is based on laws of financial management.
While you may have some ideas on how to manage your money better, it’s useful to also create a reading list of books to read on personal finance. Besides books, consider bookmarking personal finance websites like Bankingsense.com that focus on providing tips on personal finance. This site offers insightful blog posts on how to manage different financial challenges. For instance, recent posts covered themes like how to pay off your student loans, how to manage household incomes, and how to maximize your charitable contributions.
While reading books will give you a broad understanding of personal finance, reading blog posts will give you specific advice on what to do in a variety of real-life situations.
- Understand where you are right now.
The best way to create a clear profile of your current financial situation is to calculate your net worth. This will then give you benchmark, a point of reference for comparison on how well your personal finance plans have worked out by the end of 2017.
Here are the three steps to take to figure out your net worth:
- Make a list of everything that you own. These are your assets.
- Make another list of everything that you owe. These are your liabilities.
- Subtract your assets from your liabilities to arrive at your net worth.
Evaluating your net worth is both simple and difficult. It’s simple in a practical way because the steps are fairly straightforward. While it may be time-consuming to make the lists, it’s not difficult. The difficulty arises in how you’ll feel as you go about it. It’s a little like decluttering your house. When you declutter your home, you tend to come across long-forgotten memories. As a result, you struggle with nostalgia, guilt, regret, and many other emotions that can make you feel depressed. Similarly, realizing that you are not earning enough, spend too much, or owe quite a large amount can be emotionally overwhelming.
The way to get the job done is to realize that the value of calculating your net worth is to empower you to track your progress with money management over time. Your numbers will tell you what areas to improve and what areas you’re handling well. Many people shirk from figuring out their net worth because it’s a painful moment of truth.
- Create a budget.
Creating a budget is another helpful tool. Budgeting helps you plan for bills, reduce wasteful expenses, save for big-ticket purchases, spend wisely, and plan for possible emergencies. A budget helps you prioritize where you spend your money and how much you can save.
Creating a budget is as simple as researching your assets and liabilities and using a spreadsheet to keep track of the money coming in and going out. However, the real challenge is sticking to your budget. Many people take the time to create a budget, but tend to forget to keep it updated as income flows in and bills get paid over the course of a month.
- Don’t spend as much or more than you earn.
As your career advances, you will be able to buy more of the things that you’ve always wanted. There is a corresponding relationship between earning more and spending more. If this gets out of control, you may even spend more than you earn, relying on credit cards to give you more spending power. Financial gurus often call this type of runaway spending as “lifestyle inflation.”
- Figure out how to earn more.
It will be much easier to manage your money if you can earn more. If you earn more, you’ll be able to reduce your debt load and increase your retirement funds. The way to earn more is to increase your knowledge and skills. If you work for a corporation, you’re increasing your chances of getting a promotion. If you run your own business, you’re increasing your ability to improve your marketing and sales.
Stick to Your New Year’s Resolution
Although New Year’s resolutions are considered good intentions that never stick, make it different this time. Besides setting an intention to improve personal finance using these five ideas, you must also commit to sticking with your plan of action throughout the coming year. If you do, many of the financial challenges you’re struggling with right now will simply disappear.