Your Finances Need a Monthly Reboot
At the start of a new year, many of us make big, ambitious resolutions to finally get our finances in order. We promise to cut spending, pay off debt, or double our pension contributions. However, the cumbersome timing and scope of these New Year’s resolutions often sets us up for failure. In February, most of them are abandoned because life gets in the way. There is a better approach than striving for perfection once a year.
Instead of an annual review, consider doing a mini financial reset every month. The beginning or end of the month is a natural time to review your finances and set realistic goals for the next 30 days, allowing you to keep your finances on track throughout the year.
Summarize your numbers
First, I recommend tracking what comes in and goes out each month. Understanding your after-tax income (what’s coming in) versus your monthly expenses (what’s going out) is the first step to increasing your savings. It will also show you how much you spend on necessities, such as housing costs, groceries, or paying off debt, compared to nice-to-have purchases, such as eating out or entertainment, and where you can cut back on certain categories.
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Log into all accounts to update balances – checking, savings, investments, debts.
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Pay attention to your net worth by subtracting debts from assets. Look how it has changed over the past month.
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View your income, expenses, and savings rate for the month. Have you reached your destination? If not, where did you overspend?
Remember last month
Your goal in reflection is to determine what goals you are trying to achieve, when you want to achieve them, and how much you want to save. Being as specific as possible about each one will help you achieve financial success. For example, if you are saving for an upcoming trip, set aside a predetermined amount of money each month to reach your goal.
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What went well financially? Celebrate victories such as paying off debt or reaching a savings milestone.
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What went wrong? Look at areas where you have overspended or saved.
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Keep a journal about your emotions and relationships related to money. Focusing only on numerical goals may work in the short term, but if they lack deeper meaning, you’ll likely burn out.
The rate is correct for the next month
It’s time to apply your reflection.
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If necessary, adjust your monthly budget based on what you learn. Adjust categories that have been disabled.
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Plan ahead for big expenses in the next month, such as a vacation or car insurance bill. Adjust other expenses accordingly.
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Set one or two specific, achievable financial goals for the month, such as: “Pay off half of my credit card balance.”
Automate your finances
Consider setting up automatic deposit to save money without even thinking about it. Schedule an automatic transfer from your checking account to a savings account, including long-term savings or investments such as retirement, immediately after each paycheck so you’re not tempted to spend it. Depending on your financial situation, gradually try to increase this amount every month or quarter.