New Year’s resolutions are popular. People love the thought of a fresh start – “New year, new me.” It’s like a giant reset button, and we all have the opportunity to better ourselves in some way. Sadly, statistics show that only roughly 7% of people succeed in keeping their New Year’s resolution for the whole year. The vast majority revert to the old way of doing things.
One of the most common resolutions is financial health. We see roughly 51% of people list “saving money” as a New Year’s resolution.
So today, we will explore six steps you can take this year to ensure your New Year’s resolution of saving money comes to fruition.
Step 1) Get in the right headspace.
If saving money is a New Year’s resolution for you, we assume two things: Saving more is a high priority for you, and you would like to experience more success in this area than you have in the past.
While the motivation is high right now, chances are motivation has also been high in the past, and it hasn’t worked out as well as you hoped.
Discipline is key. While outlining the following steps, keep the word self-discipline in your mind. That will lay the foundation for success.
Step 2) Define what you are saving for
Without a specific goal in mind, you can lose motivation to save money very quickly. Sure it is nice to see the dollar amount grow in your bank account, but what is even more fun is spending it on a getaway to Disney or somewhere tropical. Many start with great intentions with their savings, but then something more immediate takes priority when we don’t define our savings goals.
If you are unsure what you need to save for, here are some long-term savings “buckets” you might consider contributing to:
- Emergency fund – Aim for three months of living expenses for a dual-income household, and six months of living expenses for a single income household
- Retirement fund – Aim for 15% of your paycheck to set aside for retirement (to have the best chance of maintaining your current lifestyle in retirement)
- Debt paydown – If you have debt, have a savings goal to pay it off (start with the highest interest rates)
- New car fund – To avoid car payments in the future, consider saving cash for your next car purchase.
- Education – For you or your children
- Giving – How much do you wish to contribute to a cause or charity that matters to you?
- Fun money – Vacations, RVs, toys – Define what you enjoy spending money on, and have a saving account set aside to pay cash for these items.
- Medical expenses – If you have an HSA qualified health plan, max out HSA bank account contributions, if possible, to take advantage of the tax-saving opportunity.
Step 3) Establish a consistent method of budgeting.
Saving money doesn’t typically happen by accident. It takes intentionality. How do you keep track of your monthly spending? If you don’t have a consistent budgeting method, take a look at this blog to find a way that works for you!
Take a bird’s eye view of your budget. When you look at the coming year, barring any setbacks, how much (in theory) should you have leftover? Take that dollar amount and assign it to each of the buckets above.
Step 4) Make it Automatic.
Once you have your consistent budgeting method down, the next step is to make it automatic, so saving money happens behind the scenes, and you don’t even have to think about it.
What is your saving goal for the coming year? Perhaps you want to take the list we mentioned above and assign a dollar amount to each bucket.
Then, have your HR team take a portion of your paycheck and deposit it directly in a separate savings account. If it is for a tax-deferred retirement savings account such as a 401(k), they should be allocating this money out of your gross earnings tax-free.
This point is one of the critical elements of saving money, so don’t miss this point! Having the money out of sight, out of mind, is essential to building wealth. Ideally, the funds deposited in your standard checking account would cover your day-to-day expenses and bills. Everything else is automatically deposited in separate accounts so they can remain earmarked for your savings goals.
Step 5) Stay accountable to your plan.
If you are married, your spouse should be your accountability buddy by default. They should be actively participating in your budgeting process and shown where money is being spent. This prevents one spouse from spending more than what was agreed upon at the beginning of the year and keeps you on track for your savings goals in the coming year.
Step 6) Consult with your financial planner.
Your financial planner should have an in-depth knowledge of your financial journey and can help you prioritize where you should be saving money and for what.
Let's be honest. We all wish we could save for each of the items listed above. But realistically, some of us do not have that type of income or reside in areas where the cost of living expenses are very high. Your financial planner will help you prioritize your savings goals so you can get the most out of them. Some of those saving buckets listed above are more of a luxury than a necessity, some come with tax-saving opportunities, and some are just downright essential to our health and well-being. It’s a balancing act and one that you should bring in the help of a professional to be sure you are on the right track. And, by the way, step 6 also helps with step 5. A good financial planner will help keep you accountable for the goals you have established.
We want to see you succeed in the coming year. Wealth building is not easy but is possible for each of us. Let us help you on your journey. Give us a call. We are happy to help