As January comes to an end, most of us have all of our tax forms rolling in, and it’s almost time to start getting everything in order before the tax man comes calling on April 15. While you’re busily gathering receipts W-2s and documentation from the bank, you might be overwhelmed at the state of your finances in general. I know that once the credit card bills are in from December, I often feel a bit overwhelmed! Here are some tips on getting your finances under control as you work on organizing this part of your life:
- Take advantage of those saved receipts and go through them to see where your money is going. You’ll already know about some of your fixed expenses, like the mortgage and your car payment, but other money spent might come as somewhat of a surprise. Did you have any large medical bills, home improvement bills, or other unexpected expenses that threw you for a loop last year? Sometimes, these sorts of things can help you to understand where all of your money went, and many of them are tax-deductible, so keep those receipts!
- Make a pledge to use February as the month that you will track your day-to-day spending. It is very difficult to make a budget if you don’t know exactly how much you are spending and on what. Carry a small notebook and write down everything that you spend. Ask your partner or spouse to do the same. It’s tedious, but it’s only for one month!
- Begin to make your budget. Make sure you factor in the money you spend on gasoline and groceries. If you’re spending too much on incidentals, such as coffee on the go or birthday gifts, try to find ways to curb that spending. For example, a new travel mug might make carrying coffee from home easier. Add up all of your fixed and variable expenses, and make sure that you have some money left over at the end of the month. If you don’t, do more tweaking.
- Financial guru Dave Ramsey recommends paying down your debt with what he calls a “debt snowball”: Pay the minimum balance on all of your accounts except for the one with the lowest balance; on that one, pay extra. Once the smallest one is paid off, begin tacking that amount on top of the minimum payment of the next smallest bill until it’s paid off. Continue in this fashion until your debt is paid.
- Create an emergency fund if you don’t have one. If small crises, like a damaged car tire, an unexpected dental copay, or a leaky hot water heater, make you panic because you don’t have the funds to cover them, having an extra $1,000 or $2,000 in the bank that you can pull out in case of emergency will give you peace of mind. If you can squirrel away even $100 per month, you can have this built up in a relatively short period of time. You can build it even more quickly by temporarily suspending all non-essential spending and funneling all of the money saved into your emergency account. This type of saving can be tiresome, but it’s only for a short period of time.
- Set financial goals for the year. Be specific about what you want to achieve – pay off credit card debt, save for a down payment, increase retirement contributions, etc. Break big goals down into smaller monthly targets.
- Automate your finances as much as possible – set up automatic transfers to savings accounts and retirement accounts, automatic bill pay, etc. This makes consistency easier.
- Review your recurring subscriptions and look for things you don’t use or need to cancel. Those small charges add up.
- Check your credit report and score. Knowing where you stand helps you track improvement.
- Consider meeting with a fee-only financial advisor to help create a personalized plan. An outside perspective can provide motivation and accountability.
- Use budgeting apps or personal finance software to monitor spending habits and net worth over time. Mint, YNAB, Personal Capital, and others have helpful features.
- Build an inheritance, insurance, and estate plan if you haven’t already. This provides stability for your family’s future.
- Involve your family in financial literacy. Set money goals collaboratively and teach budgeting basics to kids.
The beginning of the year is the perfect time to build habits for improved financial health. Even small consistent changes lead to progress over time.
If keeping your financial health under control is something that you have struggled with, why not make next year your year to finally make and stick to a plan?
Do you have any great tips for taming your money monster?