As 2020 (thankfully!) draws to a close, we all look forward to hopefully a more enjoyable year in 2021. While many things are currently outside our control in our lives, many of us Americans will still participate in the time-honored tradition of setting New Year’s resolutions. If you found yourself among the unfortunate many who were financially affected by the pandemic, you may find yourself setting some new goals for your financial situation in the New Year.
This can absolutely be a positive goal to pursue. Unfortunately, resolutions often fall short if your goals are too restrictive, unorganized, or unsupported. Here are a few financial resolutions to avoid and what you can do instead.
- Going Cold Turkey
While it may be tempting to take the approach of cutting out all unnecessary spending, it can oftentimes backfire in the same way cutting out all treats from your diet backfires. Being unreasonably restrictive with your finances can easily lead to a binge spending spree that sets you back further than from where you started.
Instead of trying to cut out all your miscellaneous spending right from the start, try cutting back on just a few. If you are currently eating out multiple times a week, try cutting down to just once a week. If you are picking up Starbucks every day, try limiting it to once or twice a week. The idea is that you can certainly keep these indulgences in your life, just keep them as treats instead of regular occurrences.
- Goals Without a Plan
Perhaps you’ve set a perfectly reasonable goal to save more this year. Yet despite your efforts to cut back on your spending, you find your financial situation relatively unchanged after a few months. As Antoine de Saint-Exupéry wrote in his book The Little Prince “A goal without a plan is just a wish”.
If your goal is to save more money in 2021, there is not a doubt in my mind that one of the simplest and most effective ways to improve your financial standing is to set and stick to a monthly budget. Despite the fact most of us recognize the benefits of budgeting, studies done in recent years consistently show that fewer than half of Americans follow a budget.
The most cited reason for not doing a regular budget is that it is too time consuming. While it is true that a proper budget may take a couple hours to initially set up, I would argue that the reduced stress is more than worth your time invested. In addition, once you have established your budget, its usually just a matter of taking a few minutes to review it each month to ensure you’re sticking to it. There are 8,760 hours in the year, surely one can find a few hours in the year to set up a budget.
- No Support System
If you are inexperienced or uncomfortable tackling your goals on your own, you may be setting yourself up for failure by not reaching out for help. If you have a do it yourself mindset, that’s wonderful! Learning how to handle your finances on your own is an incredibly worthwhile skill but it will require work on your end. Read books or listen to podcasts about various topics to increase your knowledge. Consider using apps like Mint, Pocketguard or Clarity Money to track your spending.
If you still find yourself struggling, consider turning to accredited financial professional for help such a Certified Financial Planner™ practitioner or Certified Public Accountant. Both certifications ensure you’ll be working with someone with extensive training and experience in a wide range of personal finance topics. A great place to begin your search is https://www.letsmakeaplan.org/ or reach out to us here at Frontier Bank to set yourself up for a successful year.
Brad Lupkes, CFP®