Save up, control spending, pay off debts, earn more money… these are just some of the financial resolutions we could make for the new year. All have the same goal in mind: to help us enhance our financial health.
When a new year is upon us, we often decide that from now on we are going to take more exercise, eat better or learn a new language. So, we could also consider setting ourselves goals regarding our personal economy. These could be to take more care of our finances and to manage them better, or to save money so that we can buy a car, retire, travel, etc.
Making financial resolutions is a good exercise for keeping control of our finances, since it helps us to manage our available resources properly and to meet our goals in an orderly manner and in a way that is adapted to our possibilities and actual needs. These objectives are also useful for getting prepared in case we have to meet unforeseen expenses that could affect our financial stability.
Although most people decide to set or renew goals for the new year, any time is good for setting financial targets. The following are five resolutions that are key for improving financial health.
Saving is key
Saving is the first step towards a healthy financial situation. It helps us meet any unexpected expenses more comfortably. Although saving money should be one of the most important resolutions, it is usually the most difficult one to keep, partly because of financial biases: decisions that our brain takes automatically and that prompt us to spend and to obtain an immediate reward before thinking about the future.
We can make slight changes to our daily habits that will help us save. For example, we can set specific amounts for leisure so as not to overspend, prepare budgets, cancel unnecessary subscriptions and services, and prepare a list before going to the supermarket.
Bad habits are the worst enemies of resolutions, in our personal life and our financial life too. They also affect our well-being. This article from Sano de Lucas, will help you to learn about the 4 bad financial habits you should avoid.
Reducing or eliminating debt
We sometimes borrow money for things we buy, such as our home, through a mortgage or our car, through a personal loan. But there are other situations in which we take out credit to pay for products or services that are not really necessary, e.g. the latest smartphone or a summer holiday. This creates a financial burden over a particular period of time. Whatever the reason for getting into debt, the key to managing it properly is to take into account our ability to repay it and to be prepared for an adverse situation, such as a drop in income or an unexpected expense .
To keep your resolution to reduce debt, the first step is not to take on any more obligations and to avoid as much as possible taking out loans or using credit cards while you are taking back control of your finances. The next step is to plan paying back debt according to your repayment capacity. There are several options, e.g. by starting with small amounts or with higher interest. Lastly, before borrowing to buy, we should ask ourselves if the article or service in question is necessary or whether we can put off buying it until we have enough money to do so.
Avoiding petty expenses
There are several obstacles to saving such as the costs we incur every day almost without noticing. Because of the small amounts involved in each case, we think that they do not affect our economy. These are mainly avoidable and unnecessary purchases: having a coffee in the cafeteria each morning after leaving home, eating out every day, a subscription to a service or product we hardly use, etc. As the amounts are small, we tend to ignore them. However, once you add them all up, they are actually a considerable part of our monthly outgoings.
To stick to our resolution to keep our petty expenses under control, the first step is to identify them, be aware that they exist and that we pay for them almost without knowing. That way, next time it will be easier to decide whether these expenses are worth making. Another tip is to make a list in which we separate our needs and priorities from our whims and desires. For example, we can use it to avoid overspending at the supermarket and at times when we are tempted to buy something unnecessary.
Generating extra income
Not all resolutions to improve our financial health centre on cutting down or going without. We can also make resolutions to generate extra income to balance our expenses.
One good idea would be to use an online collaborative economy platform. You can choose from a range of applications for selling clothes, accessories, household appliances and other articles you no longer use and that could make you some extra money. By doing so you will also be encouraging more responsible consumption and will help care for the environment, as you give these articles a second life.
Investing your money is another way to keep your resolution to generate extra income. You can make money from shares in particular companies, investment funds, bonds, deposits and other products. The main recommendation before investing in one option or another is to seek advice. Making the right choice depends on aspects such as your investor profile and the level of risk you are prepared to take.
Financial education is essential in our decisions about money. That is why Tu Futuro Próximo has prepared this article to know how it affects saving and investment habits.
Planning before spending
Last but not least among financial resolutions is planning. In the same way that it is not advisable to spend for the sake of spending; nor should you save for the sake of saving. You should do it in an organised way, focused on meeting certain goals. Knowing what your income and expenditure are is the starting point for putting your personal finances in order.
To plan successfully, you need to be realistic about the goals. Setting targets that are difficult to meet can be counterproductive. It can cause demotivation and frustration, and lead you to give up. Another recommendation is to review your resolutions now and again to see if you are on track or if you need to take any actions in this respect.