The start of a New Year is a great time to get your financial house in order. A new calendar means a fresh start and many of us make plans to better ourselves, quit smoking, lose weight, save money.
If your main goal is to make changes to your financial life, the rule is not much different than how you would approach losing unwanted pounds — make your plan simple, measurable and realistic.
If your resolution is to transform from sedentary couch potato to committed distance runner, you won’t be successful if you try to run three miles the first time out. You need to walk before you can run that far. Changing your financial habits requires a similar deliberate approach.
If your goal is to save and you find yourself running out of money at the end of every month, your first task is to find $10 here and there. Identify the easy cuts first. Are you subscribing to magazines or cable channels you never look at? Recurring costs like these eat up a budget over the course of a year.
If you don’t keep a close eye on where your money goes over the course of a month, download a budget tracker and write down everything you spend for 30 days.
For most people there will be surprises — and some obvious opportunities for savings.
Most of us know we could save money by regularly bringing our lunch to work or cooking at home more often. But actually adding up the projected savings will make the payoff of these lifestyle changes less abstract.
Now that you’ve identified opportunities to set aside more money and projected a measurable goal, it’s important to remember the other resolution rule of thumb — make it realistic.
If you go out to eat every day for lunch, or go out to dinner with friends several nights a week, start off by subtracting one or two of those weekly restaurant meals. If you try to cut back too fast and you’re miserable right away the changes won’t stick. You should be able to gradually add to your new habits until you reach your goal.
A good way to reinforce and reward your new spending habits is to set up a savings account devoted to reflect the "new financial you.” Arrange for a scheduled automatic deposit to the savings account and pat yourself on the back as you watch the balance grow.
And as your changes become sustained progress toward your goal, you should do a little more than pat yourself on the back. As part of your plan, set milestones you will celebrate with a nice dinner out or some other treat.
You’ll have earned it.