Tuesday, January 11, 2011

1.11.11 Resolutions and Goals

If you haven't made any new year's financial resolutions, set financial goals for yourself, or have broken a few already, all is not lost. Today is a new day. It's 1.11.11 to be exact. Sure no ball will be dropped in Time Square, but it's a good excuse to get the ball rolling (again). Hey, this many 1's must signal a new beginning or something. Why else would Verizon decide to make a certain big announcement today, of all days?

Alright, too much? In all seriousness, there is no better day than today to get your finances in order. If you don't know where to start, here are a few suggestions to get things going:

Know What You Have
It'll be hard to figure out what you're doing well on and what you need fixing without a clear financial big picture. So organize all of your information. Write down how many bank accounts, brokerage accounts, credit cards, debt, etc. you have. Take it a step further by making sure these accounts are in good standing. Find out your spending patterns and know where your money is going. Many credit cards and banks map out categories of consumption in relation to your overall spending.

The next step is to list all of your expenses that are "needs." These are things you can't (or shouldn't) survive without, ie. housing (rent, mortgage), insurance, food (day-to-day, groceries), car payment. This list generally should show big ticket items with expenditures of greater amounts. And no, that premium cable package is not a necessity, neither are those cute shoes, or that new gaming system.

Just because you can't live without these non-discretionary spending, doesn't mean you can't cut back on them. Before you buy that expensive car, really consider whether you can afford it or not. I don't just mean whether you can make the payment or not right now, but I encourage you to look longer term. I know we're young, and sometimes it seems important at that moment to get that flashy sports car, but I don't know about you, I rather have an even better one several years down the road PLUS a decent house and have money left over. So consider a cheaper alternative that won't lose you too many cool points. If you've already bought an expensive car, try lowering your expenses on rent, move closer to work to cut commuting costs, or shop at a less expensive grocery store.

Remember, these necessities often add up to be more than half of our spending, so you'll be a more effective at cost cutting than just slashing $12 a month by cutting out that 1 latte per week.

Make a list (or estimate) of your discretionary spending for the past year. These are items you want, but are not vital to your survival (however much you want to believe they are). Yes, now's the time for shoes, cable packages, and video games. It could also be a vacation in Hawaii or dining out. Pick out which categories the largest chunk of money is going to.

This should help you see how you spend your money and give a good indication of what your spending will look like this year.

Now make a list of your wants for this year. This way you can prioritize and cut back on spending that you may deem less of a need than others. For example, I know that I will be flying across the country a few times this year, so I'm experimenting with a discretionary budget of $100 a month (see my previous post about this plan in detail) to make up for that loss.

Check Your Credit Report
They're free from all 3 major credit bureaus once every 12 months. So what are you waiting for? Make sure all of the information listed on each credit report is correct. Dispute any mistakes and figure out what you need to work on, like making payments on time, reducing debt, or lowering credit utilization.  Go to annualcreditreport.com for the official free reports provided by the federal government.

Budgeting...I mean...Spending Goals...err...Lifestyle Change?
Whatever you want to call it, the concept's the same. Whether you think the "B" word is a dirty word or not, you should still make an estimate of spending and draw the line somewhere. The necessity vs. want list you made earlier can help you identify where you can reduce and re-allocate your money to other things you consider more important. Perhaps it's saving for an emergency fund, a down payment, or visiting that friend whom you haven't seen in 2 years.

Hopefully I've provided you with a good to-do list. Ready...set...go!


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