Now that the year is coming to a close, it's time to set your expectations for the decade ahead. Aside from adopting healthier habits, one common resolution that people tend to make is to develop their financial management skills.
Unfortunately, most people aren't able to keep up with this commitment and end up making the same mistakes with their money. In fact, only 33% of adults from across the globe know the basic concepts of financial literacy.
To finally achieve complete financial independence, you need to start taking action today. Here's a step-by-step process on how you can successfully create a financial plan. Following these will allow you to attain your goals for the years ahead.
1. Review Your Spending for the Past Year
The first thing you need to do is to review your spending for the last 365 days. How does the amount you've saved compared to what you've spent? Was your hard-earned cash used on things that were necessary, or did you splurge on things you wanted at the spur of the moment?
Reviewing where your money went will give you a clear picture of two things: where you stand financially and what your spending habits are. Knowing these will make it easier for you to point out which areas of your life are constantly draining your bank account, allowing you to address these concerns effectively.
If you've been going out too much, staying at home for the weekend or following a budget plan will prevent you from overspending. If you want to reduce your grocery bill, opting for products that are on sale can make a big difference in your savings. Taking a proactive approach and directly facing your negative habits is your first step to financial stability.
2. Create Realistic and Flexible Goals
With your current financial status and spending habits at the top of your mind, it's time to establish achievable goals.
When you're in the process of setting milestones, take note of how long it will take for you to achieve every single one of them. You'll find that simpler goals such as increasing your savings can be done within a quarter, while more ambitious ones like paying off a housing loan can take years.
Segmenting these goals into short-, medium-, and long-term will give you an idea of what to prioritize. Tackling simpler ones first will provide you with a steppingstone, making it easier for you to reach other milestones. Here's a quick goal-chart you can follow.
Going on a vacation
Paying for minor home repairs
Creating an emergency fund
Improving your credit score
Settling your debts
Starting off your own business
Saving up for retirement
Paying for your children's education
Buying a home
Make sure your goals are SMART = Specific, Measurable, Attainable, Relevant, and Time-Bound
Once you know what you want to accomplish, you'll need to follow through by committing to lifestyle changes and making periodical payments.
If you fail to reach them, don't be too hard on yourself. Instead, pick up where you left off and create a new plan with the circumstance you have now.
3. Set Limits
If you want to achieve the milestones you've set, you'll either need to increase the amount you're earning or minimize your expenses. Given that developing another stream of income isn't always an available option, trimming your spending is your best course of action.
If you tend to shop impulsively or you're a frequent credit card user, you'll need to set limits. This doesn't mean that you should be cheap and prevent yourself from enjoying the fruits of your labor. Instead, stay disciplined and absorb the concept of frugality.
Seeing the true value of things you buy will turn you into a smart shopper, letting you save more money to use on more important matters.
To successfully divide your income according to your needs, debts, and savings, you can experiment with different budgeting plans such as the 50/30/20 rule to guide you.
4. Track Everything Through a Detailed Monitoring Process
Listing everything down in a sheet will let you see trends and patterns in your financial behavior. For those who are living with or are planning to move in with their partners, you should always remember that proper money management plays an integral part in maintaining a happy relationship.
Creating a spreadsheet will make it easier for the two of you to delegate responsibilities during money dates. By tracking your income, expenses, and other related factors, you can gain more clarity on your current financial standing and make the necessary changes with ease.
Tracking your progress can also make a significant difference in how you feel about your accomplishments. If your situation is getting tighter by the moment, pointing out the positives can help you alleviate unnecessary stress and anxiety. To monitor your money more efficiently, here are the best expense tracker apps you should start using today.
5. Look for Sources of Support and Motivation
If you're facing some challenges mentally, the perfect way to get yourself back on track is to remember why you're doing this in the first place. The same way a smoker finds inspiration to stop using cigarettes, you'll need to find enough motivation to help you stay committed to your financial milestones.
When it comes to money-related new year's resolutions, it's important to approach things with great care. Making changes to your lifestyle can be very overwhelming so don't pressure yourself. Taking things one step at a time and asking for another person's help will definitely increase your chances of success.
6. Take a Step Towards a Financial Stability
Start the year right by taking a step towards financial stability. If you're able to follow these five steps religiously, there's a great chance that you'll be able to set aside a decent amount of cash in the year to come. Help others in improve their financial condition by sharing this blog post.
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