Budgeting, along with exercising and eating right, is one of the most popular New Year’s resolutions. Sadly, just like eating right and exercising, the resolution to budget often ends in a whimper rather than in financial success.
By following this action plan, you can give yourself the tools you need to actually sustain your goal to reform your financial life into 2014 and beyond.
The budget is the foundation to your future financial success. Make that foundation using whatever you find lying around and your house will not be safe. Make the foundation strong, and it’ll be prepared to weather all upcoming storms. To build that strong foundation, start with these three steps:
- Create a simple budget: It’s not uncommon to try and create an in-depth, complicated budget your first time out. But this is often a mistake as it’s extremely difficult to remember and, consequently, stick to. Instead, make a very simple budget with a few major categories only. In fact, if it makes it easier, you can have a budget broken down into bills, savings and spending money—three simple groups for your money to go in. The goal of an initial budget is to learn discipline and to get your spending on track so you spend less than you make. After some time with the ultrasimple budget, you can progress to a more detailed version.
- Understand your spending: A budget is ultimately a tool to manipulate and control your spending. In order to have maximum success in this, you must understand your spending. This means knowing the difference between your needs and your wants and discovering your tendency to buy impulsively while transforming into a buyer who thinks critically. Keeping a spending journal can aid in this task. Within, you should record the various purchases you decide to make, the reasons you make them, what you think about before you buy something, and what you think about or feel after.
- Track your results to discover problems: Your budget is not necessarily going to succeed right out of the gate. You may be squeezing yourself too tight or putting unrealistic expectations on what you can do. You may have even under- or overestimated the cost of some things. Tracking your progress allows you to identify the results you have and find problems with your budget before they become destructive.
Paying yourself first is one of the most important financial moves you can make. Whether you pay yourself first by contributing to retirement savings, nonretirement savings or both—it’s a simple way to keep your financial progress moving forward. Here are four steps you should take in 2014 to maximize your efforts to save:
- Compare savings rates: It’s a good idea to regularly compare savings rates to see if there’s an alternative bank that you can use to get the most out of your money. Some online banks with money market accounts offer more substantial savings rates than national banks. Remember too that regional banks and credit unions usually have higher rates than large national institutions.
- Consider laddered CDs: If you have a substantial amount saved, then you may not want to allow it to languish in a savings account. That said, you also may not want to risk it (especially if it’s your emergency savings) to a stock or other fluctuating investment. Instead, you can consider buying multiple CDs with varying maturity dates. This is called “laddering” and it allows you a higher return while the range in maturity dates means you’ll frequently regain access to the principal, ensuring little or no penalties for early withdrawal.
- Find out how much you must contribute in order to max out an employer-sponsored 401(k): If your employer matches any portion of your 401(k) contributions, then you need to make sure you’re contributing as much as you can in order to max out that match. If not, you’re basically passing up free money.
- Set up auto deposits: In order to build your savings, you must commit to regular deposits. This year, set up automatic deposits into each of your savings accounts so that you can really pay yourself first.
By taking a disciplined, measured approach to budgeting and saving, you can make sure that 2014 is the year you really begin financing your own life.