With the new year upon us, there’s no better time than now to reevaluate your financial situation. According to the website StatisticsBrain, the third most common new year’s resolution is to “spend less, save more,” with “getting organized” in second place and “losing weight” in first. But spending less and saving more isn’t as easy as it sounds. To help you get started on the right track, though, we have some tips.
Create a Goal
The first step towards budgeting is to create a goal. In other words, ask yourself: what do you hope to accomplish? Maybe you want to save an additional $500 each month, or perhaps you want to start a college savings account for your child. Regardless, you need to decide exactly what you are hoping to accomplish.
The second step involves creating an itemized list of each and every expense. This includes your mortgage/rent, utility bills, insurance, groceries, entertainment, etc. Don’t just “guess” how much you spend in a typical month, but actually write down each payment you make. Keeping a journal of your monthly expenses will create grater transparency over your finances, allowing you to keep more money in your pockets.
Identify Unnecessary Expenses
Next, you’ll want to go through your itemized list of monthly expenses and separate the “unnecessary” expenses from the “necessary” expenses. As the name suggests, an unnecessary expense is anything that you can life without, such as cable TV, Netflix and dining out. You don’t have to necessarily eliminate all of these unnecessary expenses from your lifestyle, but cutting back on just a few can make a world of difference in your finances over the course of a year.
Dealing with Debt
Of course, you’ll also need to tackle your debt head-on if you wish to have a productive financial year in 2016. According to data released by the Federal Reserve, the average American household now owes an estimated $7,281 in credit card debt — and that’s not counting debt from student loans, personal loans, car notes, etc. Go through your debt and identify debt with the highest interest rate. In most cases, this is the debt that you’ll want to pay off first, as high interest rates can consume your payments to the point where little-to-no money goes towards the actual principle.