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10 Financial Ducks to Get in a Row This Year

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10 Financial Ducks to Get in a Row This Year

Many people resolve to get their finances squared away at the beginning of each year after holiday expenses are taken care of. Some follow through; others fall short. But this year might be the time to make sure you fulfill that promise.

Families and the global economy have taken severe hits in the wake of the COVID-19 pandemic.

What you do in the next 12 months can set you up for unprecedented financial success, or it can multiply the effects of any money problems that developed during the pandemic. 

It’s an excellent idea to put the details of your finances in order this year. Here’s how.

10 Ways to Get Your Family Money Matters in Order

1. Know Your Numbers

If you want to drive somewhere, the first thing you need to know is where you’re starting. The same is true of reaching a financial goal.

Print out all of your bank, investment, and credit card statements for the past three months (or the year if you’re feeling ambitious) and find the following totals:

  • Total average monthly spending
  • Maximum monthly spending
  • Total average monthly income
  • Maximum monthly income
  • Total liquid cash in savings
  • Total net worth (including home equity)

You will use these numbers to gauge your financial health and to drive many of the other items below. To make things easier, many banks with online banking have tools on their web portals to calculate some of these for you.

There are also many apps available that do the same thing. 

Bonus points if you use this work to help you prepare for tax time in a couple of months!

2. Investigate Your Subscriptions

While you’re going through monthly statements, make a note of every recurring, automatic monthly charge. According to a recent Marketwatch survey, 84% of people underestimate how much they spent on subscriptions.

That’s why this business model is a popular choice for companies. People sign up because it’s automatic and forget the charge is happening. 

Marketwatch reports that the average person spends more than $110 on digital subscriptions, subscription boxes, and streaming services. Not all of that money is wasted, but it’s a reasonable bet you don’t use all of your subscriptions.

Go through your statements and list your recurring subscriptions. For the all-or-nothing subscriptions, ask yourself how much value you get out of them. Cancel those that don’t make you excited and happy.

For those with variable levels (including your utility bills and phone plan), consider if you can knock them down to a lower-priced plan.

3. Find One New In-Door Activity

Your in-door activity is the money flowing into your family finances. It might be narrow and specific, like a family with a single breadwinner who holds down one job.

It might be wide and varied, including one partner working full-time, a second partner with part-time consulting, an in-home business both work on together, and a little passive investment income.

Whatever it is, there’s always room to widen it.

Identify one thing you can do to increase the money flowing into your accounts. Every life is different, but some examples to consider include:

  • Working more hours at a part-time job
  • Starting a side hustle like driving Uber or taking paid surveys
  • Asking your employer for a raise
  • Babysitting or walking dogs for neighbors and friends
  • Setting up an online store at Etsy, eBay, or Amazon

Also, consider long-term opportunities like working toward a promotion at work or getting the education, training, or certification to qualify for a higher-paying job.

Whatever makes the most sense, build a plan to make it a reality. Include monthly, or even weekly, benchmarks for progress with that plan.

4. Eliminate One Out-Door Activity

Your out-door activity is the money flowing out of your household, such as your mortgage or rent, grocery costs, and insurance bills. Now’s the time to narrow this category.

Although it often feels like your expenses are static, you might be surprised by how many you can change with a little effort and a month or two of your time. For example:

  • Refinance your mortgage at a lower rate (without cashing in equity).
  • Shop for groceries with a list and maximize leftovers usage.
  • Cancel your membership to the gym, yoga club, or art studio you never use.
  • Ask your insurance agent how to lower your auto, home, or life insurance policy premium.
  • Stop eating out at work; instead, bring lunch from home.
  • Set a hard limit for online shopping.
  • Carpool, bike, or use public transportation to get to work or school.

If you can identify one item to cut that reduces your monthly expenses by $90, you’ll save more than $1,000 by the end of the year. Find the easiest and best opportunity, then build a plan to make it happen. 

For best results, do this in addition to cutting out your unused subscriptions. You’ll find it’s pretty painless and creates a noticeable difference in your financial situation.

5. Set a Budget

Setting (and sticking to) a monthly budget is the most important financial habit your family can adopt. This starts with taking your numbers from earlier and making a realistic plan based on them.

Set your monthly budget based on your average monthly income, with adjustments if your maximum monthly income can be significantly larger.

Your safest bet is to establish your budget on the lowest likely income for your household each month.

Set your monthly expenses the same way. Start with your average monthly expenses, then adjust for your maximum monthly expenses. Your safest bet is to base your budget on the highest likely costs for your household each month.

If you base your monthly money plan on the lowest likely income and the highest possible expense base, you avoid unpleasant surprises that mess up your schedule.

Instead, you make most months end with a budget surplus, which you can apply either to some short-term fun or toward your ultimate financial goals.

6. Make a Short-Term Goal

Although it’s one of the driving forces in most lives, money is an abstract concept. You don’t feel it, rarely touch it, and much of its benefits happen behind the scenes or well into the future.

That makes it hard to stick to day-to-day limits in the face of immediate gratification from spending cash.

One reliable tool to help with this is to set a short-term financial goal like saving a certain amount toward a vacation, filling up your emergency fund, or paying off one credit card.

Whatever it is, it should have a defined numerical value so you can watch yourself make progress with each purchase you don’t make and with each financial check-in.

Ideally, your short-term financial goal should take less than three months to complete. Set it by first identifying how much extra money you have in your budget, then finding something you can do with two to three months’ worth of that amount.

It doesn’t matter how small this initial goal is. Accomplishing it will feel good enough to energize further financial success.

7. Make a Big-Picture Goal

You should also set a larger goal that takes three to five years to complete so you keep your eyes on long term financial success. This usually works best if it takes one of two forms. 

The first is something you can reasonably attain in that three- to five-year window, such as paying off your car, eliminating credit card debt, taking a nice vacation, or saving up the down payment for a home. 

The second is to take a longer-term goal like paying off your house, saving for a once-in-a-lifetime vacation, or retirement. You won’t make these happen in three to five years, but instead, you set a benchmark you will reach by then.

Usually, this is a set amount saved or invested toward that end.

In both cases, having these big-picture goals keeps your mind on your long-term finances. Paired with a series of short-term goals for more immediate effect, it can motivate you to stay on track. 

8. List Your Lending Stats

Nearly half of all Americans have some level of standing credit card debt. Even more have auto loans, personal loans, and student loans that eat a hole in their budget and take up cash that could otherwise be spent on short- and long-term goals.

Your mission is to eliminate your non-mortgage debt as quickly as possible.

That begins with knowing the most important numbers for each of your loans (excluding your mortgage):

  • Current balance
  • Annual percentage rate (APR)
  • Minimum monthly payment
  • Total monthly payments for all loans

With those numbers, you can set up a plan to pay your debt down as aggressively as possible. One strategy that works well is to pay down the card with the lowest minimum monthly payment first.

Once it’s at a zero balance, take all the money you had paid on it and apply it to the loan with the next lowest balance. You’ll be surprised how rapidly this kills those debts and how well it motivates you to keep making progress.

There are other strategies, and there’s no reason not to try those instead. The most important thing is to set a plan and stick to it, freeing up more and more of your monthly income with each loan you pay off.  

9. Maximize Your Matched Contributions

Matched contributions are when your employer pays extra money into your retirement savings, flexible spending account, or similar fund in proportion to your spending.

For example, with a 1:1 retirement match, your employer adds an extra dollar for every dollar you contribute to a 401(k).

If you have that kind of opportunity at work, maximize it in all cases and set your monthly budget to match. 

If you don’t have matching contributions, it’s still a good idea to look into any tax-protected investments and savings you might qualify for outside of work, such as an IRA, personal 401(k), or health savings account.

Any money you can save up and access tax-free access is usually more efficient than paying off all but the highest-interest credit cards.

10. Create an Emergency Fund

There’s an old military saying: “No plan of battle survives first contact with the enemy.” Surprises happen, and they will happen to your finances almost every month.

It helps to plan for those surprises by setting your budget at your lowest likely income and your highest potential expenses. But that’s just the first step.

The second step is to set up an emergency fund, an accessible savings account you can dip into whenever emergency expenses like a home repair, traffic ticket, or sudden trip pop up.

You must decide how much you can put into your emergency fund, but consider the following guidelines:

  • Most experts who recommend an emergency fund say the minimum should be $500 or your homeowners insurance deductible, whichever is higher. This isn’t much, but it should be enough to cover minor emergencies.
  • The next level to consider is a month of your average household expenses. At this amount, you have a few weeks between losing a job (or suffering a severe illness or injury) and running out of money. You might be able to get by with about 80% of your expected expenses since it often costs about 20% of your income to go to work (due to things like commuting costs). 
  • Some experts recommend keeping six months of expenses on hand for the long haul to accommodate significant loss of employment or other serious emergencies. This would certainly be nice, but it’s usually best pursued after you’ve already paid off your debt and begun making real progress toward retirement savings.

Final Thought: A Promise to Yourself

One problem with plans and resolutions is we too often abandon them when life gets more complex and challenging than we anticipated.

But remember: A plan is a promise you make to yourself.

What would stop you from keeping a commitment to a cherished friend, your spouse, or your child? Nothing.

What would happen if you kept this promise to yourself with the same vigor and determination with which you kept promises to the people you love?

Douglas Wellington is a freelance finance journalist from Money Crashers who writes about consumer finance, including debt and saving strategies.

Contributor’s opinions are their own. Always do your own due diligence before investing.

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