The new year is around the corner which means it’s time to start looking ahead. Normally when a new year rolls around, most people start it with a list of resolutions aimed at transforming their careers, bodies, and bank accounts. Well, I can’t help you transform your career or body, but I can definitely guide you in transforming your bank account.
Dig into these 9 steps to transform your finances in the new year and let them bless you!
1. Set your desired result
I’m all about reverse engineering from a desired result.
Decide what you want to achieve, and then figure out all of the necessary steps to get there.
So, for the upcoming year, ditch the “new year’s resolutions” and set one or two achievable money goals that align with your financial journey.
What do I mean, you say?
Ok let’s say next year you want to establish a three-month emergency fund so you don’t go further into debt when life throws you a 2020-style curve ball. Instead of starting the year by saying “this year I want to save more money”, put a number and purpose on your goal “Save $7,000 this year for an emergency fund”. Now you have a desired result.
It can be daunting to think of saving $7,000 all at once, so you can break that desired result into 12 monthly mini-goals of saving at least $583/month ($7,000/12) for twelve months.
2. Decide how you want to feel in 12 months
This is actually an underrated step.
Often, we try to implement major behavioral changes into our lives without first getting our minds right.
But before you can make any action stick, you first must align your thoughts with your desired feeling. Once you get your thoughts and feelings in alignment, doing the action is a LOT easier.
So, to get your thoughts and feelings in alignment, first start thinking from a future state.
Close your eyes and think to yourself, “if I had enough savings to protect myself against most emergencies, how would I feel?”.
Yea, less stress and stability would feel good, wouldn’t it?
That is how you need to thinking in order to put yourself in the right state of mind to accomplish any goal you think of.
When I was working on paying off my car loan some years ago, I constantly thought about how good it would feel to send in that LAST payment. I often fantasized about how good it would feel to hit “submit payment” one last time.
Keeping future me in mind motivated me to get to that feeling as SOON as possible and I paid my car off two years early.
So, for the upcoming year, decide how you want to feel in 12 months and use that as motivation as you work your plan to not only reach that goal, but to also reach financial well-being.
3. Track your net worth
Do you know your net worth?
Let’s start with what your net worth is:
Your net worth is the value of your assets, minus the total of your liabilities (Net Worth = Assets – Liabilities).
Or put another way, what you own minus what you owe.
Knowing your net worth gives you a snapshot of your current financial health and wealth. It will fluctuate with each dollar you earn and owe, but in general it’s a good measure to track on an annual basis with the goal of increasing it year after year.
By calculating your net worth now, you will establish a baseline before heading into the new year. As you work to achieve your financial goals, you should hopefully see your net worth improve over time.
You don’t need to obsess over it, but keep an eye on it every month or quarter.
Oh, and keep in mind that you will have a different set of assets and liabilities than your friends or family members. I wouldn’t get too caught up on how you compare with others.
Just aim to have a positive net worth and then grow it each year!
What gets measured, gets improved.
- Stop Obsessing Over Salary and Start Tracking Your Net Worth
- Stop Letting Social Media Control Your Mind and Money
4. Create a monthly spending plan
Here’s some tough love: if you want to reach your financial goals it’s going to take creating and living on some sort of a budget. You can’t just spend money all willy-nilly and expect to efficiently reach your goals.
Enter: The Spending Plan (budget).
I like the term “spending plan” because it gives you permission to spend with intention, and it’s not meant to be restrictive like a “budget” can feel.
In a monthly spending plan, you TELL your money where it’s supposed to go. This includes bills, needs, wants, and especially savings goals. I’m talking gas, groceries, savings, personal care, all of it!
For each category in your life that requires money, set the intention each month and live it.
If you aren’t already living on a spending plan, this is the perfect time to pick up a new habit for the new year.
By getting good at this you’ll start controlling your money and won’t be surprised at the end of the month wondering “where did my money go?”.
5. Get your spending in check
This one might be my favorite.
Getting your spending in check is transformative in itself.
The first step is controlling your spending, and then you want to minimize it.
By minimizing your spending, you lower your risk of financial instability.
Think about it, the less you have to pay out, the less you NEED to bring in.
Getting in the habit of controlling your spending will also work your discipline muscles. As you earn more money, you won’t get sucked into also spending more (lifestyle inflation).
Go through the last month or so of your credit card and bank account statements and highlight some areas you can improve on.
By getting a grip on your spending, you can feel like you gave yourself an immediate raise this year.
6. Find ways to earn more money
I personally enjoy the game of cutting my expenses as low as possible, but the other side of the equation is simply earning more money.
Are you due for a raise this year?
Are you available to work overtime for additional pay?
If you can’t get additional pay from your full-time gig, can you start a side gig?
For over 15 years, I have been playing music on the side for part-time income and it’s been MAJOR for my finances.
Even if you don’t have a special talent to monetize, that’s ok. You can also sell stuff you no longer want or need.
Get creative in thinking about how you can come into more money this year but remember, the point is to improve your finances. It won’t do you any good to make more money if you just end up blowing it.
Move with intention!
7. Automate savings and bill payments
If you aren’t automating your savings and bill pay, allow this to be the year you step into the light.
Automating doesn’t mean you fully take your hands off the wheel, it just means you put systems in place to distribute your savings and bill payments where they need to go.
When you automate, you cut out a lot of the management guesswork, and lower the chance of forgetting to pay yourself or your bills.
By now, most banks offer some type of automatic system for distributing your funds, so get started by setting up automatic bill payments for your monthly bills and for transfers to your savings account.
I have ALL of my bills on automatic bill pay and it’s so convenient.
If this seems scary, just take a deep breath. Everything will be ok.
8. Get good at knowing when to say yes (and no)
You can’t do everything, and you can’t afford everything.
Saying “yes” to everything will wreak havoc on your finances.
As much as I love going to lunch with friends, I know I can’t afford to do it every day and still reach my financial goals.
Social interaction and conversation are two things I value, but I also value reaching financial freedom so I have to be mindful of this and balance accordingly.
Everything has a cost and a trade-off and you need to know what that is in every situation.
A “yes” to spending money today means that is money NOT going towards savings, debt-reduction, or investing.
So before saying “yes”, make sure it aligns with your values, both short and long-term.
9. Be vocal about your goals
Don’t be afraid to tell others about your goals.
Personal finance is personal, but you don’t have to keep everything hush hush.
Vocalize your goals and find a support network to help encourage you to reach them.
By being vocal about what you want to accomplish this year, you can gain support from others.
If your close friends know you are trying to save money for your emergency fund or to pay off debt, they can help to hold you accountable when you get that urge to buy something you don’t need.
Who knows, by being honest about your goals, your friends may even feel empowered to set their own financial goals.
Get intentional about what you want to achieve!
If you noticed, half of this list focuses on your money mindset. Why? Because this is where most people fail not just with money, but with most aspirations.
I am a firm believer that once you get your mind aligned to your goal, you can pretty much achieve anything.
So, get your mind in gear now, so you don’t fizzle out in February. And by the way, you can apply much of the above to also transform your career and body.
If you want more examples of how you can reach your financial goals in the new year, I share weekly insights via my weekly newsletter.
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