Ahhh, the New Year. It always brings about a willingness to change, to renew, recharge, do better, and finally achieve those dreams and goals. But how many times do we make those New Year’s Resolutions and promises and then by February 20th they are long forgotten about?
Don’t get me wrong. I’m not hating on New Year’s Resolutions, I’m just saying that we need to be honest with ourselves that change is only going to happen if we make it happen. And if improving your financial situation is one of those big goals for 2020, then let’s break down the changes you need to make to make 2020 a successful year.
You Need a Spending Plan
Okay, so yes, I’m talking about a “budget” here. But please don’t allow that “b” word to freak you out. This does not need to be a complicated or scary thing. The biggest thing you really need to come up with is a plan for your spending. So right now, write out how much all of your fixed expenses are every month. These expenses would be your rent/mortgage, any debt repayments, and any monthly bills that are the same amount every month.
Write all that out and tally it up. Then, pull up how much you’ve paid for your utilities in the last three months. Total them up and divide by 3. That’s the average that you spend every month on utility payments. Add that number to your fixed expenses total. Now, go back and pull up how much you’ve spent in the last three months at the grocery store. Tally it up and divide by 3.
Once again this is the amount that you on average spend on groceries every month. Do this same exercise with your fuel/transportation costs, eating out, misc. spending, online shopping, etc. Add your totals to the fixed expenses number and circle your final total. That amount of money is how much you are on average spending – how does that compare to your monthly income?
What to do if…
If you’re outspending your income – meaning you are spending more money than your household makes every month, then you need to go back and look at your expenses you just figured out and cut. Cut any expenses that are not a necessity until you get your expenses lower than your income. If you cut all the unnecessary expenses and you still are spending more than you make every month, you’ll need to go through and figure out what expenses you can reduce.
You need to keep doing this exercise until you get those expenses below your income. If you have cut and reduced all that you can and your expenses are still more than your income, then you have what is called an “income problem”. This post here goes into more detail on what an income problem is and how to fix it.
If you need more help in creating a budget, head here for The Quick-Start Budget method.
You Need an Emergency Fund
Non-Negotiable. Yep, I’m putting on my Mama voice and telling you that this is NOT something that you can skimp over and pretend isn’t something that’s going to come back and bite you. You absolutely 1,000% NEED an Emergency Fund. I don’t care what your family size is, what your income is, or where you live. You need one.
My family is 100% debt-free (yes, that even includes our home) and we would not still be debt-free if it wasn’t for our Emergency Fund. Because you know what? Life happens. Kids get sick. HVAC systems fail. Septic tanks back up and flood your laundry room and your kids’ playroom resulting in $15,000 worth of damage (true story y’all). Things are going to happen – you can count on that. So protect yourself and your family and build up an Emergency Fund.
The video below goes into more detail on setting up an Emergency Fund.
You Need to Stop Relying on Debt
Something crazy happens once you become 100% debt-free. You don’t ever want to be chained to debt again. You start seeing things in a new light. Instead of making in-the-moment decisions that leave you chained to owing people money for years, you make educated decisions because you’re spending your hard-earned cash. So instead of financing a brand new camper and paying on it for the next 6 years, you instead save up $10,000 and buy an older camper in cash and get to enjoy your camper because you don’t have to pay on it for the next half-decade of your life.
I know, I know. Everyone wants to say that we’re crazy. That it can’t be done, but we are living proof that it can be done. We’ve purchased now three vehicles in cash, bought boats with cash, bought appliances with cash, bought Christmas with cash, and we go on vacations every year paid for with cash. No, you don’t need to rely on debt to live. So, my dear sweet friend, I encourage you to make this year, the year you cut up the credit cards, and decide that you are no longer going to be relying on debt.
My cash wallet is from A Time for Everything.
You Need to Payoff Your Debt
Think about the biggest pay raise you ever got. Did you have to change jobs to get it? Or did you have to work a bunch of overtime to earn it? How big was that raise? Was it $100? Or how about $400? Was it maybe over a $1,000 added to your monthly income?
The biggest pay raise our family has ever received was when we became debt-free. Seriously, think about it. In fact, add up how much money you pay every month in minimum debt payments. Now look at that number and realize that money could be working for you, instead of against you. You could be keeping that money every month. Think you can’t save any money? Well, looky here, you could be saving all of that money that is currently going towards your debt payments.
That’s why you need to make paying off as much debt as you possibly can a priority this year. You need to kill it off because it’s killing your income. You work way too hard to be paying something else all that money. So, let’s make a plan and pay off your debt. Sure, you may not become debt-free this year, but you’ll be in a hell of a better financial situation by the end of this year if you get started paying off your debts right now. I teach how to become debt-free in my financial course, Real Life Money Plan but what you need to know is start with your smallest balance debt and kill that one first and then move on to the next smallest debt.
This post here details out everything we did to become 100% debt-free.
You Need Life Insurance
If you have folks that rely on you, you need life insurance. This is another non-negotiable item because trust me, as someone that had to bury her daddy, I can tell you that burying someone is expensive! Like super expensive – did you know that it costs more money to embalm your loved one? That caskets are cheap? That even cremation is expensive and you still have to buy the casket? And that’s all before we even talk about the actual service or actual burial!
Oh, and did you know that if you’re married to someone that has federal student loans that they don’t go away upon their death? Yep, that means your spouse will be responsible for your student loans as well as you’ll be responsible for theirs. So you need life insurance – even if you’re a stay-at-home mom.
All you need to get is a Term Life Insurance Policy which is usually cheaper policies. The recommended insurance amount is for 10x your annual income. Regardless of how much insurance you decide to take out, you need to get insurance. If you’re worried about the medical exam, do what we did with my husband. We first took out a lower policy amount with a slightly higher monthly premium that didn’t require the medical exam. Then after that policy was in effect, we applied for another policy that was higher insurance amount and then he did the exam. It’s important to note that we did not cancel the previous policy until the new one went into effect.
You Need a Retirement Account
If you don’t already have a retirement account set up, nows the time to do it! Like right now. Seriously, stop reading this and go set one up! If you are completely lost when it comes to all things retirement, head over to this post to read more about getting started with saving for retirement. Here’s the deal, ignorance is not bliss when it comes to saving for retirement. You are going to get old one day. Your elder self is depending upon your younger self to keep them from being homeless.
Think I’m being dramatic? I’m not. My husband, a professional home remodeler, volunteers his time and skills to help the elderly in our community who have nothing. It is seriously the most heartbreaking thing. And I do not want that to be you. But it will be if you don’t start planning for future you, right now.
Yes, I know that money might be tight and you don’t have the extra room in your budget between saving an Emergency Fund and paying off debt to save for retirement. If that’s the case, you need to get serious and put a plan in place. First, save up that Starter Emergency Fund. Second, pay off as much debt as you can in the next three months. Then temporarily pause your debt payoff plan and invest in your retirement for the next three months. You can keep going back and forth with this until you finally pay off your debt.
No matter how you decide to go about it, please make sure that this is a priority for your finances in 2020. I highly recommend the books, The Millionaire Next Door by Thomas Stanley; Unshakable by Tony Robbins; Start Late Finish Rich by David Bach; and Retire Inspire by Chris Hogan.
Alright, your turn! What’s your big money goal for this New Year?
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