Every year, millions of people make new year's resolutions to spark positive change and break through negative cycles. Last year, there was an increased interest in New Year's resolutions due to the global pandemic. Resolutions can give a feeling of control in a time where so many things feel beyond our control. The power boost of motivation that comes with the new year reminds us of opening a fresh new notebook and the satisfaction that comes with writing on that first page with your best calligraphy skills. A fresh start brings a boost of motivation and enthusiasm that is an incredible catalyst. It can give you the energy you need to drop bad money habits, and form new good money habits that are in line with your goals and values. Last week, we discussed the importance of financial goals, now we will see how to break them down into feasible new year resolution ideas.
1. Calculate your net worth
You probably heard of the concept “net worth” thrown around a lot. But what is net worth? In a nutshell it’s the figure you get when you add up everything you own, like your car, your house, cash in the bank and even your fancy stamp collection. Then you subtract everything you owe. Like your mortgage, credit card debts and student loans. The sum you end up with is your net worth.
2. Save up for an emergency fund
You always need some savings at hand for unexpected expenses. If you suddenly find yourself without a job you should be able to live off your savings for 3 to 6 months. That’s what we call an emergency fund.
3. Learn about finances
Financial education is one of those things you simply should have learned about in school but didn’t. Learning about financial behavior, taxes, how to start investing is essential to building long-term wealth. It may seem like a tedious task but it doesn’t have to be! Don’t believe us? Just wait until you experience learning with heyfina. Finance has never felt so smooth and easy.
4. Start investing
After calculating your net worth, investing should be at the very top of your bucket list for 2022. While it may seem like a difficult resolution (which is why it might not be the first time it has made it on to your list of new year resolutions) it’s one of the best ways to become financially secure! So, we are just going to say it like it is: if you are ending 2021 without any investments, don’t let yourself end 2022 in the same way. You could be missing out on big returns, even if you only have a small amount of money to invest! Why would this year be any different? Well you will have something you didn’t have in 2021, the heyfina-app! Coming soon to guide you through the jungle of investing. Join the waitlist to be one of the first to try it.
5. Update your financial goals:
Setting goals strengthens your motivation and increases your chances of experiencing a positive outcome. This will in turn improve your money mindset. Your money mindset is a combination of your own beliefs and attitudes about money and has a huge impact on your financial behavior. If you have changed or reached some of your financial goals this year, update them!
6. Track your finances
Tracking your spending on a regular basis is a money habit that can give you an accurate picture of where your money is going and where you’d like it to go instead. You can either check your bank statements manually or check if your bank has a statistics or insights feature which gives you an overview of where your money is going to. As you track, you become more aware of your spending and maybe realise your subscriptions are adding up to a lot more than you thought so you might want to give up some of them. It’s worth your time to keep an eye on your monthly expenses because of what you’ll uncover. You’ll find out what's really costing you, and what is maybe not as bad as you thought.
7. Find a budgeting method that works for you
To help you with this step we have listed 5 popular budgeting methods below that will help you save more money. At first it will be a conscious process but over time it will turn into a great money habit. Take the year to try them and find out how to start a budget plan that works for you!
- The Balanced Money Formula: Some people stick to the 50/30/20 rule — a good starting point that can be altered to fit your lifestyle. The general rule is to spend no more than 50% on rent and necessities (like bills), 30% on daily expenses and “fun” purchases, then save the remaining 20%. Some people stick to the 50/30/20 rule — a good starting point that can be altered to fit your lifestyle.
- The Kakeibo Method: Kakeibo gets its name from a Japanese term meaning “household financial ledger.” Essentially a kakeibo is a physical budgeting journal. Users answer some financial questions and set savings goals. Then they track their expenses, put their purchases in categories, and review expenses at the end of every month. More importantly, kakeibo is designed to help you think about your relationship with money and understand why you’re making each purchase. When you can spend hundreds of dollars by clicking a few buttons on Amazon, this can be a nice reminder to slow down.
- The 60% Solution: 60% of your income is used for “committed expenses.” These include your mortgage, food, basic clothing, car payments, insurance, etc. Where this differs from the “needs” category of the Balanced Money Formula is that literally ALL your bills are included in this category, including such wants as cable TV or your expensive cell phone plan. The remaining 40% of your income is divided into four categories with 10% allocated to each category: retirement, long-term savings, short-Term Savings and fun Money
- Cash-Only Budgeting: Also, called “Envelope Budgeting,” Cash-Only Budgeting is where you use actual cash to use as your spending money. What you do is allocate your money to your separate categories and then withdraw cash out from your bank account. You then put the cash in envelopes labeled to match your categories. This might sound very outdated but this method can still be very effective. Especially because you can leave your cards at home. Only thing to watch out for is online shopping.
- Value Based Budget: This method relies on quite a bit of soul-searching and self-discovery because the “values” in the name are your values. The hook of this method—which still involves tracking your spending—is to spend money based on your values rather than worrying about how much you are spending in specific categories. For this method, you’ll want to write down what you’re allowing yourself to spend your money on based on what you value.
More than half of all resolutions fail, but this year, they don’t have to be yours. A lot of resolutions fail because they’re not the right resolutions. And a resolution may be wrong for one of many reasons. Firstly, don’t create resolutions that are based on what someone else is telling you to change. Think about what you want and what your goals are. The strongest motivation comes from within! Secondly, make sure to make a realistic plan on how to achieve your resolutions. Break them down into smaller pieces and tackle them one by one. And last but not least, make it a positive experience. Talk about them with your friends. Reward yourself for your progress and don’t beat yourself up! You got this!