We have arrived at that time of year when we all start to reevaluate our finances. Perhaps you are already feeling the impact of your Christmas spending, and you want to set financial resolutions for the new year to alleviate the cost of your holiday festivities.
Whatever 2020 has in store for you, you could likely benefit from getting on top of your spending once and for all, especially post-Christmas. Whether you’re saving to buy a new home or are tired of living paycheck to paycheck, a New Year’s resolution may be just what you need to jumpstart your financial goals.
Without any guidance or experience, you may be unsure of what your first steps should look like. Maybe the mere thought of enforcing any type of financial order gives you a migraine. You wouldn’t be alone in your pain, but there is hope for relief; the best time to start is now.
Admittedly, financial resolutions cannot be set on a whim on New Year’s Eve and promise success. Instead, prior education and proper planning are essential to improve your chances of sticking to your goal. Taking this step now will put you on the fast track toward financial freedom. First, you must acknowledge your current situation, identify the mistakes you’re making, and learn the best financial goals you can set to overcome them.
Signs You’re Spending Too Much
While some of us are aware that our finances need attention, many of us are guilty of turning a blind eye to our bad habits. Excessive spending in small amounts may seem harmless, but it adds up in a big way over time, creating serious budget damage.
The good news is that there are some tell-tale signs you’re spending too much or failing to manage your finances successfully. They include:
- Always running out of money on or before the end of the month
- Struggling to develop a savings fund
- Continually using your credit card to bail you out
- Never quite being sure where your money went
- Never checking your receipts
- Having very little spare cash after rent, mortgage, and bill withdrawal
If you identify with any of these warning signs, you may be on the path to financial disaster. Although this is a common way to live for teenagers and young adults, it is not smart or sustainable. If you have a family in tow, overspending like this every month can be even more detrimental by affecting your children.
Figure Out Where Your Money Goes
The first step to overcoming these problems is determining where your money is going right now. This will help you identify “spending leaks” and expenses that you can do without. You’ll also gain a better understanding of how you can approach financial goals that work for you. But how exactly do you figure out where you are spending all your money?
In truth, there is no quick solution. If you want to know where your money goes, it will take some time and effort. You will have to track and record your spending for the next month. Consider using a spreadsheet or tracking app for this task to simplify the process.
Once you have tracked your total spending, deduct your necessary monthly expenses, such as rent, utilities, and insurance. Then, sit down and weed through the spending that is not essential to living. Consider how much you spend on purchases like takeout or digital subscriptions. For each “spending leak,” ask yourself the following questions:
- Can I afford this?
- Do I need it?
- How much does it cost me across the year?
- Is there a cheaper alternative?
- Could I cut down on spending in this area?
- What is my current net worth? (e.g. how much do I own vs how much do I owe?)
Once you’ve answered these questions, it should be clear what you are wasting money on and where you could potentially implement financial goals in your 2020 resolutions. Don’t underestimate how helpful this step can be toward mastering your overall budget. You can only free yourself of financial restraints when you realize what’s binding you. Remember that this doesn’t mean you must abandon every nonessential purchase; however, you must consider its value to you in comparison to your goals.
The Benefits of Finally Dominating Your Finances
We know what you’re thinking; all of this seems like hard work. Why bother? Sure, your budget isn’t where you’d like it to be, but do you really need to go above and beyond to get things back in order? The simple answer to this question is yes. Finding a successful method for managing your finances will reap life-changing benefits, including the following:
- A savings pot you can rely on
- A budget that lasts all month long
- Less financial stress
- A more opulent lifestyle (yes, really!)
- Better financial coping strategies
- More money altogether
Don’t hold yourself back from integrating those benefits into your own reality. Here are some of the most popular financial resolutions and what exactly they could do for you in 2020.
Set The Best Financial Goals in 2020
There’s no big secret to setting financial goals in your household. In reality, you just need to sit down and put in the work. However, identifying a particular focus for your 2020 resolutions will improve your chances of success. The list below explores a variety of popular financial goals that will help you narrow down your own efforts.
Create a Budget
Despite the fact that 93% of people feel budgeting is necessary, it remains a fundamental step that 33% of the American population fails to take. If you’re new to the pursuit of financial independence, you might be part of that percentage.
One of the main reasons why people don’t take control of their finances is that they aren’t properly educated and don’t know where to start. If you are following the steps listed in this article, you already made some progress when you began tracking and recording your expenses. You still have some work left to do if you want budgeting to be a successful 2020 resolution; however, it isn’t the colossal undertaking it may appear to be. Below is an action plan for starting the creation of your budget:
- Calculate expenses (which you’ve already done)
- Gain a clear idea of your income
- Set financial goals (debt payoff, savings plans, etc.)
- Take the time to track/record spending
- Remain realistic about occasional overspending, but always return to your budget
Want to learn more about creating a budget?
Check out our Budgeting Page!
Once you sit down intentionally to tackle this, you should find that a decent budget doesn’t take any longer than an hour or two to write up. Whether you keep it on your fridge or saved in a computer file, this will represent a huge stepping stone toward your financial freedom.
Note, too, that no budget is completely uncompromising. Your financial goals should be reevaluated and modified as your income and lifestyle change. There is no need to panic when events don’t go according to plan. Simply use your current budget as a template to update your goals and find solutions.
Do Away With Debt
If debt is a prominent expense in your overall budget plan, the next goal you may consider is how to get rid of it. The road to financial freedom is long and strenuous with unpaid debt hanging over your head, so it’s an issue you will want to address sooner rather than later. Once you make a big enough dent in your debt, you will have extra money leftover each month to put toward savings or luxuries.
The best way to tackle this goal head-on is by establishing some sort of debt payoff plan. We are not referring to the payment plan your debt agency or bank already has in place. Instead, you will want to implement a plan that involves getting rid of your debt in the shortest time possible. Most millennials with debt feel more confident about paying it off over the next five years.
That time frame will depend heavily on your personal circumstances, including your income, budget, and how much debt you have accumulated. Overstretching yourself to clear out all of your debt in a few months will likely leave you in financial turmoil. Instead, you need to develop a repayment plan that fits comfortably within your own budget while accommodating your personal goals.
In order to specify the parameters of your debt-alleviating resolution, first decide how much debt you would like to pay over the coming year. Then, you can quickly determine how much you will need to pay each month to make that happen. Adjust the plan accordingly until you settle on monthly amounts that work for you.
If you have multiple debts right now, a management plan like this can be tricky to follow. In that instance, consider consolidating the debts you have so that you only need to worry about one monthly, manageable expense.
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Check out our Debt Payoff Thermometers!
Fund in Case of Emergency
Once you have settled on a budget and started tackling your debt, you should finally be in the position where setting some money aside is possible. Savings are fundamental to life’s ups and downs; otherwise, you’ll be up the creek without a paddle when your boiler breaks or your child comes home with a permission form (and price tag) for a costly school trip. Failure to keep an emergency fund is often what leads us into debt in the first place. After all, emergencies are not something for which we can plan.
While experts suggest that your emergency fund should be enough for around three to six months of living, there’s no “right” number when it comes to setting money aside. If you are in the process of paying off debt, a safe and manageable amount to strive for is $1,000.
Setting any amount of money aside is progress. In addition to giving you a slight financial cushion, even small payments here each month help you adjust to the all-important saving habit. It is developing habits like this that will be the driving force for your journey toward financial freedom.
Much like with your debt management plan, you can start saving by determining a few factors as follows:
- How much you want to save overall
- The amount you need to set aside each month
- The incentives you can set to help yourself reach your goals
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Then, all that is left to do is to start saving. After you reach your initial 2020 resolution, you may be able to increase your emergency fund goal to account for bigger financial mishaps like job loss.
Remember Your Retirement
It’s easy to forget about our financial futures when we’re so focused on our current situations and troubles. Sadly, that failure to consider the future can leave us without money when we need it the most. Elderly living often comes with added healthcare costs and a whole lot more free time to fill. That’s why now is the time to save for your retirement.
When you don’t have heaps of excess money to spend, this may seem like a frivolous expense that you could do without. You are already saving for emergencies, after all, so why bother with retirement, too? Perhaps the best way to overcome this perspective is to remember that your pension is an investment.
If your employer makes contributions, your money is growing with no additional effort. We would argue that doing away with your unnecessary subscriptions is well worth a better and more stable future. Though, with a proper budget, you should be able to manage this goal without compromising too much.
If you’re currently dealing with debt or other financial obligations, you may find it difficult to still contribute to your retirement accounts. We suggest continuing to contribute if your employer offers a match though. It’s an instant return on your investments. Quite literally free money that your employer gives you.
Now if you’re strapped for cash then work towards this goal, but make sure you get back to this ASAP. Once you’re debt free – crank up the knob on your retirement contributions as much as possible. Most experts recommend saving 15% of your income, not including employer match. We say save until it hurts, while not sacrificing necessities.
Tightening your belt a little now will pay off exponentially in the future. Ensuring your retirement savings maintain your living expenses through your lifespan is critical.
Focus On A Financial Plan
Not to be confused with a budget, a financial plan focuses on where you would like your finances to be rather than where they are now. This can be incredibly useful for setting up a forecast for long-range financial goals such as purchasing a house. After all, laying out that plan in front of you allows you to work backward and see what you need to do with your finances now to make it happen.
In reality, all the points on this list could be considered part of your financial plan. They’re undoubtedly going to make an appearance at some point in your journey. A financial plan should focus on all phases, helping you to keep on track and see the light at the end of the tunnel.
While financial plans are unique to our individual situations, this should be a comprehensive examination of every aspect of your finances now and moving forward. As you draw up your plan, there are many considerations to be made, including the following:
- Long-term and immediate financial goals
- Current spending and limitations
- Future financial predictions
- Steps you need to take to make your plan happen
- A rough time frame to provide financial focus
Like your budget, your financial plan will probably change often, and that’s okay. Still, you should soon find that having this guideline in place goes a considerable way toward keeping your finances in line. It should ultimately bring your monetary goals within a more comfortable reach.
Cut Down on Spending
The simple truth is that you can’t save what you spend. While we may like to think that every instance of our spending is absolutely necessary, this purely is not the case. Even those of us who live to the wire often make the mistake of spending money where we don’t need to. Be it takeout or an Amazon Prime subscription, these are costs that can add up a great deal more than we realize. Cutting them in half or even altogether is sometimes the only way to achieve the financial freedom we are after.
We don’t mean that you need to say no to every treat in your life. After all, the journey to financial independence is about living a fulfilling life, not an unhappy one. What good is money if you can’t spoil yourself now and again? The trouble is that, when those treats eat into your ability to save, budget, and clear debts, they become more detrimental than positive. As such, at least consider the ways you can cut excessive costs as a fundamental step.
If you’re a sucker for ordering food, try to limit or budget this habit to a manageable level with your emergency fund, retirement, and other savings taken into account. It may be that you need to order out once a month instead of every week. Equally, if you are subscribed to everything from Netflix to Amazon, consider the platforms you use the most and cancel the subscriptions that you use less frequently. After all, a Netflix subscription that goes unused is going to cost you over $150 a year. That’s money you could be contributing to debt clearance!
By tackling your spending with this mindset, you should find that you can reduce the amount of money you’re paying without totally giving up the luxuries you enjoy. It’s a more reasonable and realistic approach, and it will make managing your finances so much easier than it has ever been before.
Increase Your Income
The idea of earning more to manage finances may seem elusively simple, but it’s surprising how many of us fail to consider this concept when it comes to managing our money. Instead, we want to feel richer without making more. Admittedly, a decent budget plan can help you to achieve that goal, but you can take another route or push your 2020 resolutions to the next level by actually increasing the amount you earn.
Remember, it’s not always about how much you earn but it certainly helps. Once you’ve reduced all of your unnecessary expenses, your next best solution is to work on earning more money each month.
Of course, this is the real world, and asking for a pay rise doesn’t always pay off (although it might be worth a try.). Even so, there are plenty of ways to earn more money, and they are not as complicated as you think. If you want to increase your income without trying your hand at anything new, why not just take up some overtime? An extra hour each weekday will make more of a difference than you might imagine. What’s more, this effort could help you stand out with management and earn that pay rise after all!
Likewise, 44 million Americans now have side hustles, and your income could soon improve if you join them. The best thing about side hustles is that you can embark on them based on your own time and schedule, meaning you can spend as long or as little as you like on these pursuits to give your budget the boost it needs.
Some top 2020 side hustles you might want to consider include:
- Buying and selling
- Survey sites (SwagBucks, PointClub, etc.)
Once you dip your toe into these waters, you will find that side incomes make all the difference in managing your finances. As for managing this extra income, the best course of action may be to dedicate this money specifically to goals like debt clearance or an emergency fund.
Keep Tracking Your Finances
Congratulations! You have nearly reached your ultimate goal of financial freedom, but there’s just one last step to take, and it involves tracking. As we have touched on in some of the goals already mentioned, finances change all the time, and it can be challenging to keep on top when you are doing everything manually. You may be pleased to hear, then, that there are plenty of tracker tools out there that could make it easier for you to set your budget and financial plan while keeping on top of them throughout the year.
When you start looking into such tools, chances are that you will come across an option called Personal Capital and this is a program well worth downloading. It is 100% free to get, and it is fantastic for helping you track every aspect of your budget both now and moving into your financial future.
With easy syncing of accounts and the ability to determine your net worth in seconds, Personal Capital can take all the work out of budget setting. It also has the following benefits:
- Cash flow tracking
- Retirement planning
- Investment intelligence
- Automated budgeting moving forward
This simple tool and others like it can make sure that you’re always adjusting your financial priorities and focuses according to your lifestyle and needs. Plus, you should find that a program like this holds you accountable to savings plans etc. that you put in place. Never again will it be as easy to overspend or outright ignore your financial goals!
2020 Resolution: Say Hello to Financial Freedom
As you can see, financial goals aren’t difficult to set or maintain with a little know-how and focus. With a tracking tool at hand, you won’t even have to worry about reassessing and returning to the drawing board all year long.
Really, finding success in managing money comes down to accountability. Ignoring finances might be easy right now, but it will create so much more work for you down the road. Continuing to turn the other cheek will make this battle impossible to win.
You can prevent that from happening by taking action now and getting things in order this month. Identify your spending habits and then arrange a budget and a financial plan now. There will finally be no more struggling your way through January or feeling that after-Christmas monetary sting; your finances will be sprightly and better than ever before!
Perhaps the best thing for us to leave you with is a little reminder that financial goals are not a prison sentence. Rather, these are guidelines to help you get things back on track so you can live the life you desire. Don’t get stuck on the fact that you “fail” merely because you momentarily lose sight of your budget. That mentality will only lead to throwing in the towel. Instead, play the long game. You will probably trip up at some stage, but it doesn’t matter. What matters is that you get back on that financial horse and ride your way to freedom!
What are your financial goals for this year, and what actions are you taking to make them a reality? Let us know in the comments!
Hi, I’m John Hawrylack! I’m a husband, dog dad and FIRE enthusiast. My love and passion for personal finance started when I was a teenager. My goal is to help others discover their version of FIRE. I’m an admin of the ChooseFI Philadelphia group. I have a BS in Computer Science and MS in Software Engineering. Our blog has been mentioned in Forbes, MSN, Yahoo, Fox Business, U.S. News & World Report, Ladders, GoBankingRates, Debt.com, VOYA, ChooseFI and many more!