By Donna Skeels Cygan
As you look back on 2014 (and more preceding years than you’d like to admit), it’s clear that you could have done a better job of managing your finances. Perhaps you’re thinking, “Not to worry — 2015 is the year when I’ll finally save more and spend less. In fact, I’ll make that one of my New Year’s resolutions! However, if you want to rise above the 90 percent of Americans whose resolutions fail, you’ll need more than just good intentions.
As is the case with accomplishing most goals, getting on the path to financial security is easiest when you plan ahead and make a series of small, sustainable changes. So after the ball has dropped at midnight, it’s a good idea to spend a little time deciding how, exactly, you’re going to make your resolution a reality.
It’s true that sitting down to tackle money issues isn’t most people’s idea of fun (especially during the holiday season), so to help motivate you, keep in mind that the reward for taking control of your finances in 2015 isn’t only monetary — you’ll also be happier when you become financially responsible. Good, smart, sane money management feels great.
Here are 12 specific strategies to help you keep your resolution and make 2015 the year you build a more financially secure future:
Focus on saving, not on budgeting!
Calculate how much you are currently saving. This is an important first step, because saving is the primary factor in achieving financial security.
Next, look for ways by which you can increase your saving percentage. Strive to save 15 to 20 percent of your gross income. (Most people save much less than 15 percent!)
I suggest making your savings automatic. Many people save through their 401(k) or 403(b) at work, and the money is swept into the account before it ever appears in a paycheck. Set your savings up so it is automatic, occurring on the first of each month or as soon as your paycheck is deposited into your checking account.
If you are saving 15 to 20 percent of your taxable income, you don’t need to worry about your budget. Forget the budget and focus on saving.
Get serious about paying down debt
Excessive debt creates stress, and getting rid of “bad debt” is an important step toward financial security. “Bad debt” is debt derived from actions that have no future benefit. For instance, credit card bills (carried over from month to month) are typically from vacations, eating out, gifts or clothing.
The expenses were in the past, and there is no future benefit. For this reason, credit card debt that cannot be paid off each month is always considered to be “bad debt.” Contrast that with debt from a home mortgage. Your home provides long-term benefits and enjoyment. Home mortgage debt is “good debt.”
If you’re not sure where to start when it comes to eliminating debt, it’s generally a good idea to focus on debt that carries the highest interest rate — likely credit card debt. Pull out all of your credit card statements (with a balance) and make a plan. Commit to paying off a significant amount each month and mark it on your calendar. Where there’s a will, there’s a way.
Hold a family meeting to set long-term financial goals
Maybe you’d like to save more for retirement, set up college savings accounts for your kids, and beef up your emergency fund. To make sure your long-term financial goals actually happen, you and your family need to sit down and figure out how you’re going to get from here to there.
Consider what really, truly brings you joy
How we spend our money says a lot about our values and priorities. Take some time and think about what’s really important to you and your family, and embrace the (possibly liberating!) responsibility of reprioritizing your life. With your values in mind, it may be less difficult than you thought to get rid of unnecessary and unwanted items, obligations, and self-imposed responsibilities.
Rethink what you’re calling “necessities”
For example, do you really need the expensive cable package with all the movie channels, or would you be able to get by with basic cable? Does your 12-year-old really need a cell phone with a data plan? In fact, extreme as it may seem, do you truly need the big house you’re living in, or would downsizing to a more modest home work just as well for your family—and far better for your budget?
Make sustainable small changes
If you are feeling overwhelmed at the thought of taking control of your finances, start small. Perhaps you set up automatic savings of $50 per month into a Roth IRA. Perhaps you commit to not buying junk food or soda at the grocery store for the next month. Or perhaps you decide to change your cable TV package to something more affordable.
The idea is to make smart adjustments in your lifestyle, not to turn your life upside down overnight. Small is sustainable — and baby steps in your financial life can add up quickly!
Look for six more tips for taking control of your finances in MSR’s next edition of “Movin’ on Up.”
Donna Skeels Cygan is the author of The Joy of Financial Security. For more information, visit www.joyoffinancialsecurity.com.