We all rush to create fresh habits and responsibilities in the new year, but we have one more suggestion for your already-full plate – smart financial goals.
It's easy to feel like our money situation is out of our control, but as financial expert and best-selling author of the Womanista Approved “Love Your Life, Not Theirs,” Rachel Cruze shares, managing finances for the year ahead can be easy if you make sacrifices and clean up any existing debt.
“I want 2017 to be the year that you take control of your money and take steps towards financial success,” Cruze says.
Create a budget
Keeping track of your spending is less than enjoyable, but Cruze says budgets are the key to winning with money.
“When you budget, you’re telling your money where to go, instead of looking up at the end of the month and wondering what happened to it,” she says. “If you’re going to take control of your money, a budget is key — [it] allows you to be proactive with your money, rather than reactive.”
Cruze adds that many will discover after careful budgeting that it allows for freedom and permission to spend money as you become more attentive to expenses.
“A budget isn’t about complicating your life,” she says. “It’s about knowing where your money is going and that will make your life a whole lot easier!”
Consider the ‘Debt Snowball Method’
When you’re making payments every month, Cruze suggests that you have a lot less money to save, invest and spend on things you truly value. As she puts it simply, “debt robs you of your income.”
With a hope that everyone can erase their debt no matter the interest rate, Cruze advises consumers to use the Debt Snowball Method — a baby step strategy that helps you knock out smallest amounts first in order to create momentum in your debt snowball.
“List your debts, smallest to largest, regardless of the interest rate [and] attack the smallest debt with every extra dollar you have, while making minimum payments on everything else,” she says.
Cruze also encourages us to cut back on spending habits and pay off the smallest debt as quickly as possible. Once you’ve hammered it out, roll everything you were paying from the first debt to the second debt. With the exception of your house, she advises to keep going until you’re completely debt-free.
Cruze says too many people make impulsive spending decisions and end up broke with nothing to show for it.
Why does that sound familiar?
As explored in her latest book, one of the biggest reasons people spend their money so impulsively is because of the constant comparison games we play. Of course, social media doesn’t make it any easier.
“We end up spending money we don’t have in order to live a lifestyle we think everyone else is living and we’re missing out on,” she says. “Comparing yourself to others not only steals your joy, but your paycheck [too].”
Cruze says in order to get “comparison spending” under control, find contentment with where you are. As she says, it doesn’t mean you aren’t striving for more — it simply denotes you’re not making rash choices based on what others do.
Create an emergency fund
Cruze suggests starting with a $1,000 "baby" emergency fund. Excluding your mortgage, after paying off all your debts, she says to increase that to three to six months of expenses.
“Without an emergency fund, a crisis moment can become even more stressful,” she says. “And with no money to cover the emergency, people often turn to debt.”
Become financially literate
“You never want to do anything with money that you don’t understand,” Cruze says. “So when it comes to investing and building wealth, you need to know what you’re doing and why you’re doing it,” she says.
Take control? We can do that!
Change your behaviors
Cruze says good money habits stem more from behavioral changes than head knowledge. As with other areas of life, most people know what to do, but they just don’t do it.
“We all know we want to retire one day, [so] we need to save and invest our money,” she says. “However, too often people delay saving simply because they don’t make it a priority or don’t make sacrifices in other areas of their lives.”
The importance of making wise decisions with your money in order to set yourself up for long-term financial success cannot be overestimated.
“If you’re going to win with money, you have to have some self-control and that means creating a plan — a budget — and sticking to it,” she says. “You have to think before you spend, control your lifestyle choices, and understand your needs versus wants.”