If National Financial Planning Month flew by without you noticing (it was October), you are not alone. But before we begin the downward slide into the end-of-the-year holidays, consider grabbing that bull by the horns and getting it done. Your annual family financial plan, that is.
Now is a great time to take a good look at your finances, since a lot of people tend to spend more money at the end of the year, and many are already thinking ahead to next year’s spending (e.g. vacations, big purchases, and expenses). Plus, you may feel burned out after successive holidays and the pressure of New Year’s resolutions, so consider doing it sooner rather than later.
It doesn’t have to be complicated. Even if you make a simple plan and write it down, you are already ahead of the game. According to a Gallup poll, only 38% of U.S. investors have a written financial plan. But the poll also found that those with a written plan are more likely to stick to it—and that’s not just Gallup. That’s a well-established psychology concept.
So grab a pen and paper or your preferred electronic device, and let’s get started.
1. Survey your finances.
Log into all of your financial accounts and write down what your debts and assets are. Also, include your current or anticipated income for the next year. Taking an honest look at your finances is easier for some people than others, so if your feelings about money are a little fraught, take a deep breath and just do it.
Note the areas that could use some improvement. This may seem broad, but everyone’s situation is different. Do you have several types of consumer debt? Are you paying off student or other loans? Are you contributing to savings and retirement funds? Is your retirement fund comprised of mutual funds or diversified investment portfolios? Do you spend more than you earn? Are you planning for large expenses in the future such as education or medical procedures?
These questions are possible starting points for figuring out attainable goals for the next year.
2. Make a budget.
Now go one step further, and write down what your daily, weekly, and monthly expenses are. With your expenses, liabilities, and income all on paper, you can start to sketch out a rough budget (if you don’t have one already).
If you already use an expense or budget tracker, such as Mint or You Need a Budget, you should have a good idea of what your monthly expenses are. If you don’t, start now! There are a lot of good, free tools for tracking your expenses, and it’s easier than ever to make a budget you can stick to.
If you don’t already have a budget, you may cringe at the idea. Maybe it sounds too restrictive. Believe it or not, a budget can reduce stress by helping you live within your means, and manage unexpected expenses.
Once you see where your money is going, look at expenses that can be reduced. Does eating out take up a large portion of your budget? Are you throwing away too much food that goes bad before you eat it? Do you pay for media subscriptions or gym memberships that you don’t need or rarely use?
Also take a look at how much extra, if any, you have after bills are paid. Can you contribute more to saving or investments? Make a realistic decision about how much money per paycheck you can put in savings.
3. Make some goals and write them down.
Once you have taken a hard look at your finances and have made a rough budget, find out where you can achieve some small wins. You may want to put away a certain amount or percentage from each paycheck into savings. Perhaps you want to increase the amount you contribute per paycheck to a 401(k).
When paying down debt, you could set a goal that will help you make visible progress, as opposed to seemingly never-ending payments. If you are overwhelmed with multiple accounts, try focusing on a small balance first so you can feel good about paying off an account. Then use that momentum to tackle debt with the highest interest rate.
Financial goals can also include figuring out ways to increase your income, such as switching jobs, creating passive income, taking on side work, or completing certifications that make you competitive for a promotion and/or raise.
Once you have decided on some goals, write them down! And put them in a place where you will see them often. Otherwise, your preparation and thought process will go to waste. Writing down your goals makes them more concrete and if you look at them often, the visual reminder can help you stay on track.
4. Make sure your goals are realistic.
Whether your goals are saving more, spending less, earning more, or reducing debt, make sure that they are realistic and break them into smaller steps if necessary. Go for small wins. Research shows that if your goals are nearly impossible, or not rewarding enough, you will become discouraged and not follow through.
Great job getting to this point! While you’re at it, consider other aspects of life planning such as revising your will, if you have one, or creating a will if you don't. Make sure that your life insurance beneficiaries are up to date as well. And float through the holiday season knowing that you’ve already checked something off the to-do list.