If there is something we can all use after the holidays it’s a financial check-up. If you feel like your credit card bill is so big it needs it’s own mailbox, you aren’t alone. It seems to come every year… family gatherings, work outings, shopping, Christmas parties, the list goes on and on… It’s like we need to get out of the spending habits and start to become financially smart again.
Everything seems to come at us all at once and then we are left with the holiday cheer hangover in the form of a credit card bill that barely fits in our maillot. Don’t worry you aren’t alone. Here are a few things you can do to get financially smart in the year ahead.
Here is how you can start your year to get financially smart
#1 Financial Review of the Past Year
Track all of our spending throughout the year with some software (if you currently don’t track your finances, I highly recommend it, you can’t fix what you don’t know isn’t working). If you are looking to get started there is Tiller and Personal Capital, and provide useful tools for tracking and managing your money.
Then starting in January we go back and look at where our money went over the past year. We go over all the different types (Gas, Groceries, Gifts, Shopping, Mortgage etc…) see where it went and decide what can be done and where we can start to cut corners.
Cut something down or out completely
For instance, last year say we spent just over $3,000 in restaurants. While we both agree that we enjoy dining out, a lot of the time we dine out it’s more because of convenience and lack of planning.
So cutting back to one nice meal a month out, even if the meal comes to $100, we will be saving nearly $2000 a year. Something worth doing.
#2 Sets Some Financial Goals
You will get nowhere without setting some money goals for this year.
You money goals can include, contributing to your retirement or savings ( via IRA, Roth IRAs ,TFSAs, RRSP). Or something a little more personal like saving for a new car, vacation or whatever gets you excited.
Make A Goal That Stretches Yourself
Whether your goal is to become debt free or mortgage free. Find a goal that lasts more than a year so you can keep at it, because once you hit a big goal everything changes in your life in incredible ways.
#3 Go on a Cash Diet
This is something we do at the start of every year. I love and hate the cash diet simultaneously.
What we do is look at our spending (See #1) and take a look at expenses we can control and change (Gas, Groceries, Dining out, Entertainment etc…).
Then, we decide what we should try to live off of on a weekly basis. We have tried a monthly amount but we find that it’s easier, at least for us, to go week by week. Basically we decide on a weekly amount that we need for living and take it out in cash.
This year it’s $350 with a goal of being closer to $300. I would like to make it less but we have made it a hard number so we can’t go over it and any left over goes into the petty cash incase we need it the following week.
The Cash Diet is Best
Doing this has had a great impact on us. Over time, with credit cards we tend to not think about the amounts we spend until we get the bill in the mail once a month.
Both my wife and I have been guilty of coming home (especially during the holiday season) and telling each other what we bought and not being able to tell what the total bill was for anything. That’s a recipe for disaster.
Cash forces you to think about everything you buy. When you think about every item you put in your cart while shopping you get financially smarter. In this paperless society, money and credit can be less tangible and can cause us to not think about our spending.
But when all you have is cash on you, your shopping tendencies change FAST!
Once I went over on our budget while I was at the grocery store. Rather than pulling my credit card out, I started taking stuff out of our cart at the checkout.
It was embarrassing but I’ll take that as part of the financial wake up call.
Hey if it was easy, you wouldn’t have to do it!
#4 Start Calculating Your Net Worth Every Month
If you truly want to know if you are doing well financially through out the year the best way to keep an eye on your finances is knowing and tracking your Net Worth.
Tracking this key amount every month will give you a better idea of how you are doing financially.
Since we started tracking our net worth we have watched our net worth grow and it lets us know how we are doing throughout the year.
If you are interested in learning about net worth you can use Personal Capital. They are a free service and can help you get started.
Share the and help others become financially smarter this year.