Who doesn't like the fresh start of a new year? A clean slate and an optimistic outlook make January 1st a magical time. The only problem is that every year we vow to take care of our finances, but we ultimately get sidetracked with excuses. But this year will be different, and to help, here are some smart money moves for the New Year. (When you're short on cash, a strict budget is the best tool for finding financial stability. See Budgeting When You're Broke.)
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Review the Previous Year
What better place to begin a new year than to reflect upon the past? Take a look at last year's budget, identify the good and bad money moves you made last year and resolve to make the necessary improvements for the upcoming year.
Set One Financial Goal
Keep it simple this year and set at least one goal you'd like to achieve by the end of this year, then put all of your focus and energy towards achieving the goal.
Some financial goals could be to:
Automate Your Finances
If your money seems to slip through your fingers before you can save any of it, putting yourself on an automatic savings plan to debit even $50 per month from your account is a good way to save without feeling the pinch. If you don't see the money, you won't miss it and before you know it, that $50 per month in savings will be $600 at the end of the year.
If your problem is more that you keep forgetting to pay bills and end up paying interest on overdue bills, you can also automate your bill payments by calling the companies directly to ask if they can debit your account every month, or talk to your bank about automating your recurring bill payments.
Improve Your Investing Knowledge
This is probably the area most people are afraid of. Of course it will all look confusing to begin with if you want to tackle everything under the sun in a short amount of time. So start slow and simple with something like learning what bonds, stocks and mutual funds are. For each topic, apply your newfound knowledge towards your money so that the information becomes relevant to you.
Your company might also offer free seminars to understand your finances better. You can also go online to learn the basics at your own pace. (Make it to the end of the month, before you run out of money. To learn more, refer to The Beauty Of Budgeting.)
Get Out of Debt
For anyone who is in debt, it is really better knowing what your financial situation is than to stay in the dark. Next, create a budget listing your net income per month and where you plan to spend your money in each category.
Once your budget is done and you know what you have to work with, make a separate plan to get out of debt. Start by listing all of your debts, their interest rates and minimum monthly payments.
Now minus the total amount of minimum debt repayment you'll have to make each month, and whatever is leftover should be applied to either the lowest debt balance you have or on the debt with the highest interest rate.
As you clear each debt, take the amount you used to pay towards that debt and apply it to the next debt in line until you're debt-free.
You may find that your minimum payments equal or exceed 15% of your net income. In that situation, you will need to adjust your budget percentages and cut back on your housing, life or transportation costs, or simply make more money.
Don't rob your savings category in the beginning to pay down your debt. You should save a minimum of $1,000 for emergencies before adjusting your savings.
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Make a Plan
Keep it simple and make sure you've covered all the bases for each goal. For example:
Goal: Save $5,000 by the end of the year for an exotic holiday vacation.
Step(s): Save an additional $417 per month, or $208.50 per bi-weekly paycheck.
The Plan: Review your budget and set up an automatic withdrawal from your paycheck into a savings account.
The Bottom Line
There are plenty of other goals out there, such as buying a home, a new car or going on a European vacation. The main thing to remember is that without a plan, your goals will always be dreams.
Find out what happened in financial news this week. Read Water Cooler Finance: Steady Stocks, Big G's And Madoff News.