All or Nothing Day is usually thought of as a day of extremes. Being extreme can be fun on occasion but probably won’t help to improve your finances but taking one hour each month to focus on your finances will. Here are several tips to help you transform your finances:
Track Your Spending
It’s easy to lose track of where your money is going especially if you are relying on paper statements from your bank or financial institution that don’t categorize transactions for you. The good news is that there are a number of free budgeting apps such as Mint that will make tracking your spending a breeze. It takes just a few minutes to setup each of your bank and credit card accounts and your transactions are downloaded each time you login, so your balances will be up to date. Budgeting is also a snap as Mint automatically creates a budget for you by looking at your past spending habits.
Commit to Cutting Current Spending by at Least 10%
Once you have a budget and know what your spending patterns are, it’s time to get serious about cutting spending. Set a realistic goal of reducing your spending by 10% or more on discretionary items such as clothing, food, and entertainment. Once you can comfortably reduce your spending by 10%, try to build on your success by tackling other categories like utilities, transportation or housing. To reduce spending further, you may need to get a little more creative like increasing deductibles on insurance policies or planting a shade tree on the east and west facing side yards to lower electricity usage.
Automate Your Savings
Now that you have freed up some cash, it is time to look at boosting your savings. Your first priority should be to setup an automatic monthly transfer to move money from your checking account into a separate emergency fund account. Most people will need enough cash in an emergency fund to cover 3-6 months or more of living expenses in case of job loss or major illness. Your next priority should be to pay down high interest credit card debt followed by saving for retirement. Waiting to increase your retirement savings can cost you free company match dollars and the benefit of compounding returns. Instead of paying down all your debt, focus on the high interest debt first and then set aside at least the minimum required to win the employer match, even if that means it will take longer to eliminate your debt. It’s easy to save through a company sponsored retirement plan with payroll deduction and you can increase the amount taken out of your paycheck at any time.
Make a Plan
How many times have you made a New Year’s Resolution only to find yourself losing interest several weeks later? You are not alone. An average of 60% of people abandon their New Year’s resolutions within 6 months and make the same resolution ten times without success. According to research by Dr. Gail Matthews, a psychology Professor at Dominican University in California, you are more likely to accomplish your goals by simply writing them down. In fact, 76% of participants in the study that wrote their goals and action commitments down, and shared a weekly progress update with a friend, reported achieving their goals, versus 43% of participants that only wrote their goals down on paper. A key component of reaching your goal is to have a clear understanding of what tasks are necessary and to have a system in place to hold yourself accountable.
Start by making a list of your financial and personal goals and then prioritize them. Be honest and take your time with this important process. Ask your spouse or significant other to make their own list and prioritize their goals and share it with you. This process can be an eye opener, especially for new couples who haven’t discussed the topic of long-term goals in a relationship. Some negotiation is inevitable however, it is crucial that your partner be equally committed to the success of joint goals. Many disagreements occur due to couples not sharing the same level of commitment to achieving both financial and personal goals so it is wise to discuss goals early in any relationship.
Having a plan to pay off debt and invest for a comfortable retirement are goals that should be at the top of your list.
By spending a little time each month and focusing on your finances, you can be on the road to reaching your financial dreams.