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This season, you may feel overwhelmed with articles and content online about how to level up your finances in the new year – they’re everywhere! Everyone rattles off ideas about different resolutions you can set, how to automate your way to your goals, or different “hacks” to help you double the size of your bank account and retire by 45.
Sound familiar?
Here’s the good news: If you’ve been steadily working toward your goals for years, you likely don’t need a total overhaul of your finances.
At Gen Y Planning, one of our core values is: Simple first, Sexy later. That’s why we recommend one easy year-end “to do” to gut-check your overall spending habits, check up on how your finances align with your goals, and use this season to truly “reset” your spending habits – not to implement 1,000 new tools, systems, and tricks that you’ll abandon by February.
The One To-Do On Your List for Better Finances Next Year
The one (and possibly only) step you need to take to level up your finances next year is simple but may be uncomfortable:
Check your bank and credit card statements.
The goal is to get a clear sense of where you are now, what triggers impulsive spending, and what can be improved moving forward. Many credit card companies provide an annual spending report – read it!
As you move through your statements, you’ll notice patterns and likely learn a bit about your unconscious spending habits. You may notice when your spending is out of alignment with your goals or what specific seasons tend to send you into a financial rut after staying on track toward boosting your savings or putting money aside for an experience you’ve been looking forward to – like that trip to France, or finally taking your kids on a road trip to your favorite National Parks.
This exercise is by no means meant to shame you or guilt you about your spending. But if you want to reset and move forward in a more goal-oriented way, you need to have a good idea of where your starting line is. You may even catch duplicate charges or subscriptions that you’re no longer using.
Analyzing the Data: What Changes Do You Want To Make?
When you go through your statements, jot down what comes up for you:
- Key spending categories that you feel proud of or excited about continuing in the new year (example: travel)
- Areas where you overspent or where you don’t feel like you love the “results” of an expense (example: Amazon orders that are just cluttering up a closet)
- Goals you hit (example: maxing out your Roth IRA)
- Goals you missed – and why (example: paying off your car loan. Daycare costs increased.)
This is where the rubber meets the road. Too often, people get stuck in analysis paralysis when it comes to their money. They look at the numbers or track their spending but don’t take the next step to make necessary adjustments. Then, they’re disappointed each December when they realize that goals weren’t hit or that they’re generally unsatisfied with their finances.
Let’s break that cycle!
Paying attention to the data and coming up with a game plan to *actually* implement change, can help you to take meaningful action in your financial life – and move toward your goals with confidence.
For example, maybe you eat out 4-5 times a week, and cutting it back to two dinners out saves you about $150 a week. That equates to $7,800 a year — a good chunk of change toward more meaningful goals you might have.
Setting Goals
Did you know that over 47% of the American population sets more than one New Year’s Resolution? It’s easy to get excited about making positive changes in your life and setting financial goals is no different. You may be wading through your bank and credit card statements, thinking about how you want to completely overhaul your spending and make other sweeping changes to your lifestyle.
Again, focus on this mantra: Simple Over Sexy.
Before you get carried away setting dozens of new goals for yourself, focus on a few key categories:
Debt. What debt obligations do you have, and when do you want to pay them off? If applicable, set up a payment game plan or a strategy to refinance your debt at a lower interest rate.
Savings. You might be saving for multiple goals – an emergency fund, a sabbatical or career pivot, retirement, college education expenses for your kids, the list goes on. Prioritize what you’re saving for, and set clear goals around how much you want to have saved and when you will need the funds.
Take actionable steps to make these goals happen, such as:
- Automating savings contributions
- Opening appropriate accounts (529 Plan, Roth IRA, a savings account earmarked for the down payment you’re working toward)
- Setting “rewards” up for each goal milestone you meet (a fun dinner out as a family, a purchase you’ve been putting off, etc.)
Values. These goals are tied to the feelings that bubbled up when you initially went through your bank and credit card statements. Where are your financial decisions out of alignment with what you value? For example, you may want to:
- Save for a house down payment
- Start a 529 Plan to save for your kid’s college education
- Pay cash for your next vehicle
- Plan to retire earlier than you initially thought
- Spend more time with loved ones
How are your current financial decisions or spending habits supporting those goals? How are they detracting from them? Think about how you want to show up in life and how your money can support that vision. Some goals in the “values” category might be:
- Reducing material purchases and reallocating those funds toward travel or family experiences
- Automating contributions to a house down payment savings account, knowing you’ll spend less on eating out
Changes don’t have to be big to have an impact.
Bonus Tip: Get a Tax Projection Completed
Have you had major changes in your life this year? If you:
- Changed jobs
- Added a side hustle
- Moved
- Had a baby
- Got married
A tax projection can help you better understand where you currently are with your wealth and tax liabilities. It can also help you to make end-of-year decisions like donating to charity or maxing out funding to HSA and 401(k) accounts, that help you get a jump-start on your values-aligned goals heading into the new year.
Simple First, Sexy Later: Your New Year Mantra
As you head into the new year, consider simplifying your financial goals based on your spending and financial decisions this year. To encourage progress and work toward goals that matter to you, pick just three financial shifts you want to make – and map out how you want to implement them. Choosing one per category (debt, savings, values) is an excellent place to start.
Not sure where to begin?
This is where teaming up with a fee-only financial planning team can help you. A financial planner can help you set goals, track progress, and act as a sounding board to ensure your financial decisions are lining up with what you want out of life.
Ready to learn more? Schedule a financial strategy session by clicking here. We’d love to talk to you about your goals and how to set yourself up for success in the new year.
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