They say hindsight is 20/20. That is usually a way of saying your past choices are clearer when viewed from your current circumstances. It is also something people say when they are not happy with their current results. However, you can also use your 20/20 hindsight to script your future so that you will be pleased with the results when you once again review your choices of the past year.
The new year brings the opportunity to make resolutions and map out a plan to achieve your goals. Many of those may be personal goals, like improving your health or finding personal fulfillment. It’s also an opportunity to make financial resolutions and hold yourself accountable. It all starts with setting goals.
The best place to start is to literally write down your goals. The practice of writing down your goals not only helps you visualize what you want to achieve, it also holds you accountable. Financial goals are no different. Try the exercise of imagining the financial goals you would like to achieve and then commit it to paper.
What would you like to achieve over the next 365 days? Would you like to reduce your household debt? Perhaps you have a big purchase in mind like a new car, a boat or even a house? Travel may be big on your priority list. Or you might even be thinking longer than the next year by looking for opportunities to grow your investment portfolio or your retirement savings.
Whatever you dream, write it down. Even better advice would be to hold on to that list and compare it when you get to the end of the year. Not all goals are achieved, but you might find you made significant strides towards reaching them.
There is no better opportunity than learning from past behaviors. You’ve probably set goals in the past and for one reason or another were unable to achieve them. What got in the way? Did you start a new goal but lost interest? Did you have too many goals and not enough resources to reach them? There is a pattern there and a quick review of your previous year will help you identify it.
If you haven’t kept good records of your spending and saving patterns, now is the time to start. However, if you look back over the last year and see what your income was in comparison to your expenses, you can determine where your budget should be set.
Income is typically a known value, unless it fluctuates because of seasonality, bonuses or economic conditions. Start with your base income as your starting point, but be aware of factors that might impact your bottom line throughout the year like inflation, scarcity, or anything that would affect your cost of living.
Review the expenses which make up your cost of living. This would include housing costs, utilities, insurance, food and groceries, vehicle maintenance and repair, and basic necessities. But don’t forget the costs accompanied with clothing, food and entertainment, and even those extra additions to your household like pets. These are all extra expenses that will be deducted from your income stream.
Now that you have a clear picture of your personal finances over the last year, it is time to establish a realistic budget for the coming year. Include all of the basic costs of living that can not be avoided. However, take a closer look and see where economies can be made if you are spending more than is necessary.
Cutting back on luxury items is an easier save than cutting back on the necessities. Decreasing the amount of money you spend going out to eat or shopping can create huge savings. Do you spend a significant amount on sports and entertainment? Both make life much more enjoyable, but also present an area where costs can be scaled back.
Don’t forget to forecast for emergencies or at least the unknown. Prepare a buffer to protect your budget in the event you lose your job or an additional source of income. Maybe you will have an addition to your family by way of spouse or a new child. Vehicles and homes can be costly in the event of a maintenance emergency. Give yourself the financial room to address any situation that might arise.
You might realize savings at the end of the year when the emergencies written into your budget never happen. That money can be rolled over into the next year’s budget, invested, or used to meet some of your other goals like travel or a large purchase. It might not meet this year’s goal but will be a great boon when it comes to meeting the next year’s goals.
From checking and savings to loans and investments, Bank Independent is your local, financial partner to help you meet your financial goals. Visit your local sales office or explore our services online at bibank.com and find out how to make the most of your next year.