New Year’s Resolutions are just around the corner. Another year has flown by, and with it the chance to make a big impact on your future financial position. This year is practically over so your ability to make this year great is well in the past. What’s done is done, and it is time to focus on next year. If you wait to tackle next year’s problems in January you are already starting from behind. Get started today.
What is Your Debt Vision for Next Year?
Too often we just let life happen to us. We go about nonchalantly, spending money here and there, and perhaps setting aside a dollar or two for the future. Our efforts are unfocused and lackluster. We end up with some progress toward goals, but nothing serious. As a result we have to work harder and save even more in the coming years just to remain even with our long term goals.
Wouldn’t it be better to get ahead starting next year?
Don’t let your financial life happen to you. Plan it out, think ahead, and try to have a vision for next year. And let your vision be big, monumental accomplishments. If you don’t reach them completely you will still have made significant progress. This is much better than setting a mediocre goal and not even hitting that.
What kind of vision do you have for next year? What could it look like?
Your vision needs to be specific to your situation, but here are some starting thoughts:
- I will pay off $12,000 in debt by December 31st of next year.
- I will to stop using credit cards and pay off my balances by May 1st.
- I will to refinance my home to a lower rate by March 1st.
Whatever your vision is, come up with it now. Talk to your family during the holidays and set up a clear vision for what you want the coming year to look like. If you don’t, you greatly increase the odds that you don’t accomplish nearly what you could have.
Begin Preparing Next Year’s Financial Goals Now
Once you have a vision in place, a destination in mind for your efforts next year, you need to come up with specific goals. And not just any goals, but S.M.A.R.T. Goals.
S.M.A.R.T. goals are goals that have a specific structure that helps hold you accountable to reaching their success.
Here’s what the acronym stands for:
- Specific: not generic, but specific details about the goal and answer questions like who, what, why, and so on
- Measurable: not vague, but something that can be measured
- Attainable: not unreachable (“become a billionaire”), but still stretching you
- Relevant: once achieved the goal will move you forward in the area you are focusing in
- Time-bound: they must have a specific time element as a finish line for the goal to be complete by
Here’s the opposite of a smart goal: “I will pay off debt next year.”
Here’s a SMART goal: “I will pay off $3,600 in credit card debt by December 31st.”
Can you see the difference? The SMART goal is specific and can be measured: did you or did you not pay off $3,600 in credit card debt? It is attainable because that is only $300 per month in extra payments. It is relevant because you would make significant impact on your financial situation this year. It is time-bound because there is a specific finish line of December 31st.
The first goal is garbage and likely similar to resolutions you’ve made in the past.
Set great goals so you can achieve great things. If you set terrible and misguided goals, you’ll get the same type of result.
How to Use Next Year to Change Your Financial Future
Now that you have a vision and some specific goals to target, get your hands dirty in coming up with how you’re going to begin working toward those goals. If you have never cut back spending or worked a second job, it might be difficult to begin paying $300 in extra payments towards your debt starting in January. That’s why you need to do this exercise now so you can get hit the ground running in January.
The following questions should help you mold a plan for most financial situations, but don’t stop here. Use these as a starting point.
How Much Are You Spending?
There are two basic variables to your financial life: how much money is coming in and how much money is going out.
For most of us cutting how much we are spending is a bit easier to start with than trying to go out and earn more money. You can cut spending today. To get more income you might need to go find a second job so that isn’t nearly as immediate.
To calculate how much you are spending, don’t look at just one month. Go back at least 3 months and do an average since some months have more spending than others. Look at your bank statements from your debit card use and ATM withdrawals as well as your credit card statements. If you spend less with cash then the process of tracking down all the numbers becomes a bit easier because it is all tracked electronically with your bank and credit card company.
If you want to take an extra step, break down your spending into some main categories like groceries, fuel, insurance, and entertainment. Your categories will be specific to your situation. You might be surprised to find you are spending more than you ever thought in a certain area of your life.
How Much Are You Earning?
This is the second basic variable and thankfully it should be much easier to calculate. Simply grab your pay stubs (or look at your direct deposit amounts at your bank) for the past few months. Again, do an average because depending on how you get paid there might be an extra paycheck during a given month.
Set a Spending Limit and Track It
Some like to call this budgeting but since many people conjure up terrible images of spreadsheets miles long, we’ll call it a spending plan. Whatever you call it you simply need to set a hard limit for your categories of spending and then track your monthly spending toward that number.
For example, maybe you never knew you were spending $400 per month eating out and have decided to cut that back to $150 while increasing your grocery budget by $50. The net result would be $200 less going out – that’s $200 you could use to pay off debt, so this is a big opportunity.
But you’ll never know if you are doing a good job on cutting back if you only look at your bank statement every four months. Set aside time each week to look at what money went out, and adjust your behavior accordingly.
Know that it is okay to go a little bit over your budget in a certain category. Maybe you set your initial spending goal a little too low. At the same time, don’t use that as an excuse to not many significant financial change in your life. That’s why checking in once per week can help you keep tabs on your progress toward your set spending limits in each category. If you notice you spent too much on groceries last week, you could trim back a little bit before you go shopping this week.
Make Next Year Great Right Now
Next year won’t be waiting long for you to come around. It is practically here already. Will you wake up in Januar financially lost and not sure how to change your life? Or will you take a few simple steps today to begin righting the ship into clearer financial waters? Choose wisely.