Amy Miller, AFC®
Every new year, like many of us, I vow to do better, be better, set goals, and so on……. but since change doesn’t happen overnight and resolutions rarely last, I thought I would kick this year off with some simple and easy ways for us all to start financially fresh.
Make a spending plan
Smart money habits always begin, in my opinion, with a budget and spending plan. The sooner you make one, the better. A good place to start would be to take a deep dive into your checking account(s). Review the past 6 months of statements and break down your income and expenses, then sort into categories. This will help you know exactly what you are bringing in and what you are spending. Suggested categories are housing, utilities, groceries, entertainment, and clothing – customized to fit your situation. I suggest looking at each category and breaking down what is being spent, making cuts, or redirecting funds if necessary. This exercise is typically very eye-opening. I once had a client tally what she spent at her favorite fast-food restaurant located next door to her office – totaling over $600 in one month. Seeing that number in dollars & cents made her realize that purchasing a new car, one that she needed but thought she couldn’t afford, wasn’t out of her reach – she just had to change her breakfast and lunch habits. Cutting back on those chicken sandwiches and milkshakes, made one of her goals a reality.
Once you know what money you have and where it’s going, you can then set up a realistic plan of spending and tracking. Effective tracking is very important. There are many tools out there to help you track your spending. Some of my clients like the old-fashioned envelope method where you keep receipts and stick them all in an envelope that you carry with you. Each category and the amount budgeted is outlined on the front. You deduct expenses from each as you spend. For others that prefer a paperless option, there are several apps available like PocketGuard, Mint, Goodbudget, and Honeydue.
Taking a hard look at your finances is a great time to start thinking about and setting goals for future expenses….emergencies, vacations, new cars, tuition, etc. As I stated before with budgeting, the same “the sooner the better” applies. It’s never too late to start saving. Open a savings account (or two) and automate it to make it simple. You know the old saying – out of sight, out of mind – if it never hits the account that you spend from, you won’t miss it….right? Having funds put away will hopefully prepare you to cover future expenses without having to go into debt.
Know your credit score
Once you are on the right track with spending, it’s time to think about your credit. It is important to know your FICO score and what is being reported to each of the three agencies: Equifax, Experian, and Transunion. Not all financial institutions report to each so checking them all is imperative to a healthy credit file. You are entitled to one free report from each agency every 12 months. Some states have passed laws that allow an extra report from each bureau every year as well. You can reach out to each agency individually or utilize annualcreditreport.com to get all in one stop. There are many other organizations out there that offer free credit reports, credit monitoring, scores, etc. I won’t name any of them but advise you to do your homework and proceed with caution – not all are completely free and most provide the same services that you can do for yourself through the agencies directly.
Additionally, during my time as a lender, I would meet with people occasionally that have utilized these services. Many come in stating they know that they have a certain score but when I pull the report, often, it’s not even close! Some don’t even offer a FICO but somewhat lead to you believe that is what you are getting. You may also be able to get your score from your credit card or bank/credit union at no cost. My financial institution does a soft pull on all clients every quarter and makes it available through online banking.
Take your time
And finally (for now), when starting a fresh new year and new you, we must talk about major purchases. My best advice is always to sleep on it. I find I have the willpower to make a good financial decision after I have thought it over and reviewed my budget and goals (I always think more clearly without that new shiny beautiful item staring at me).
That is all for now – I will continue to explore ways to become more finically fit this year and hope they inspire you to set new goals, make a realistic plan and stick to it. I know it’s easier said than done. Some try their entire lives to figure it out – here’s to it not taking you that long! Happy New Year!