Achievable financial resolutions for 2015

There isn’t a better time to start good habits than the beginning of the year. The end of 2014 was either a big blow to your wallet, or a big boom if Santa was good to you. Here are some tips to get started on the right track to financial health in 2015 and how exactly this may be accomplished.  

1) Don’t save your EXTRA money

That’s right. Don’t save what is left after spending. Instead, spend what is left after saving. That way, the savings pool becomes a primary expense and a top priority, not just an afterthought for when something is left over after everything else is paid and bought. It is human nature to spend what remains. Putting money away first counters the tendency to put your savings off for another time. 

How: Create an automatic savings withdrawal from your direct deposit income account that goes into a separate account you’re not allowed to touch. Schedule this auto-deduction right when your paycheck hits and before all your bills are due. Be ambitious and start with a high savings deduction. Chances are you won’t notice it and will cut down on unnecessary costs instead.

2) Establish your emergency fund

An emergency fund is a refuge should you lose your job or have a health crisis. (The release of the new iPhone is not an emergency!) Six months’ salary is a fair amount to keep in an emergency fund to cover any unforeseen costs should you suddenly lose your income or become unable to work due to health issues. Having an emergency fund is also a great stress-reliever. It’s easier to establish long-term goals knowing you’ve got yourself covered in case of sudden expenses.

How: Accumulate funds from the automatic savings deduction in #1 until you reach the total of 6 months salary. Put this money away in another liquid account and forget about it. You’re only allowed to touch it in an actual emergency, and you must replenish it before working on other financial goals.

3) Think of your financial life as a business

When your check comes, pay yourself first. This doesn’t mean you get to go shopping! This means you should take care of yourself by putting money in your emergency, savings, and retirement funds. After you take care of yourself, pay the costs that keep your “business” running: rent, utilities, groceries, commuting fares, gas, etc. Like any successful operation, monthly accounting measures must be performed and costs that do not result in income must be minimized in order to keep your business afloat. Operational costs must be less than income. If you are in the red, that means your “business” is going underwater, and so is your financial health!

How: Start a simple spreadsheet enumerating your monthly expenses vs. your monthly income and see where the problem lies. It’s difficult to face the reality of financial problems, and denial is a powerful escape, but there really isn’t a better time to address them than today if you don’t want to keep repeating the same mistakes every month.

4) Your credit card is not your friend. Break up with it

If you are not paying your monthly credit card balance in full, you are in debt. You are buying things you cannot afford. A credit card is not a convenient way of paying for things if you don’t have the cash for them in the first place. It then becomes just a path to financial ruin.

How: Cut up your card or leave it at home until you zero out your balance. Learn to save for big ticket purchases instead of using a card to obligate you to pay for items you don’t have the cash for in the first place. Multiply your credit card balance by the annual percentage rate (APR) of your card. That is what you’re giving away because you cannot live within your means.

5) Figure out what you value and replicate it at home

Take a look at your expenses and see what you truly value and enjoy among them. For example, if you like entertainment and pay for cable TV for the two hours you’re home at night, see which shows you can find online and scrap your cable subscription. Better yet, spend that time reading or playing with your children, or dining with your significant other instead.

How: Examine your costs and see what you can do to minimize them. Cut your phone’s data plan if you have access to WiFi. Have cocktails at home before going out with friends to save money on drinks. Make your own coffee drinks instead of shelling out P150+ every few days at coffee shops. Learn to cook. Cooking 2-3 dishes over the weekend may take the place of your lunch and dinner costs through the week if you eat at restaurants otherwise. It’s better for your health as well.

6) It’s never too early to start saving money

If you believe that putting money away is for older people, you might be inclined to leave that task for your thirties, forties, or fifties. However, there isn’t a better time to start saving than before you have personal obligations like children, health issues, and home improvement costs. You’ll appreciate your foresight later rather than having to scrounge for cash when you are older and your income potential is on the decline.

How: Start your automatic savings plan (#1) today. P 1,000 put away monthly at age 25 in an account earning 5% annually grows into P 601,361.45 when you turn 50. Putting P 2,000 away monthly in the same interest account will give you P 1,202,722.89 when you are 50.  It might be very appealing to spend that extra P 1,000 on a dinner or an outfit today, but committing to a monthly savings deduction will bring you closer to financial security with just a little bit of sacrifice every paycheck.

The topic of money and financial freedom is very intimidating, and for many of us it’s easier to just be resigned to living paycheck-to-paycheck for most of our adult lives. By taking small steps such as saving small amounts every month, you may begin to make bigger plans like saving up for a down payment for a house, or putting money away for retirement or your kids’ educations.  

Like everything else, bigger rewards don’t come all at once without any effort. Commit to a brighter financial future this year by taking the first step of putting money away today.

Have a happy and healthy 2015! – Rappler.com

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