By Ann Arceo, AAMS®
I’ve always loved making new year’s resolutions. Sure, sometimes you get to March and realize you’ve already fallen into old patterns, but I love taking time to reflect on the year past and plan for the year ahead. Working in personal finance, I definitely have some financial goals on my list. If you’re looking to change your relationship with money in 2022, consider these 4 financial resolutions as you ring in the new year.
Know How Much Your Lifestyle Costs
If you’re good at making a budget and using it to track your every purchase, that’s great. Working with clients over the years, I’ve found most people aren’t great at budgeting. The good news is that you don’t have to love budgeting to be successful financially. You do, however, need a system in place to manage your money, and you do need to know how much your lifestyle costs.
At our firm, we call it building a “master budget,” but it’s taking the time to list out your take home pay, all your monthly fixed expenses (rent, utilities, minimum credit card payments, etc.), your variable spending (groceries, gas, shopping, etc.) and adding it all up to see how much is left over. If there isn’t any left, what can you cut? You need some wiggle room in your budget so you can move on to the next recommendation.
Automate Your Finances
Once you know how much you have left in your monthly budget, set automatic savings and debt payment goals. Create an automatic monthly transfer to your savings account, and an automatic payment (above the minimum payment) to your credit card accounts.
It may seem counterintuitive to save while you have debt, but it’s important to build a small cash cushion so that you don’t use your credit card for every unexpected expense that you face.
Pay Down Debt
Once you start making goals, it's easy to get caught up in making ambitious goals that are hard to achieve, which could lead to demotivation. You don’t have to become completely debt free in 2022 (by debt free, we’re talking credit cards and loans with high interest rates that aren’t attached to an asset such as a house or car). A great starting point is to commit to not adding to your debt.
Put the credit card away. If you aren’t able to pay off the balance on your cards each month, that’s a sign that it’s time to stop using them even if you get points. The rewards you earn likely don’t compare to the interest you pay.
Learning to use only a debit card or cash is a huge first step towards living a debt free life.
Increase Your Financial Knowledge
Most of us didn’t learn about personal finance in school. We pick up habits from our parents and friends, and we wing it as we go along. Sure, we know the basics: saving more is good and debt isn’t great, but the specifics get fuzzy.
Learning more about your finances will empower you to make better decisions for your future. Commit to enrolling in one personal finance course and read at least one book on the topic. Here are some resources we offer to help you get started:
Courses:
Mindful Money Class - To walk you through building a budget.
The Money Class - A comprehensive look at your finances.
Books:
Uncork Your Finances by Amy Irvine, CFP®
Flipping the Switch by Barbara O'Neill
We wish you all the best in 2022, and we’re here to help you on your financial journey!