How to Make Financial New Year’s Resolutions That Work
The beginning of the New Year marks the perfect time for a fresh start. If your financial goals for the last year didn’t go to plan, it’s time to begin re-evaluating and creating new goals that are achievable and prioritised. Not sure where to start? Below is a guide to setting financial New Year resolutions that will work.
Calculate Your Net Worth
The first step is to measure your current financial health. The best way to do this is by calculating your net worth. Your net worth is the difference between what you own and what you owe.
To calculate your net worth, first add together the cost of all your assets. Assets include your home, car, investments, savings accounts, Kiwi saver and anything else of value that you own. Next, minus your liabilities including anything you owe, for example student loan, mortgages, overdrafts or credit card debt.
From this calculation, the end value will give you an indication of your financial health. If you have a positive balance this indicates that you are doing well. However, if you have a negative balance this is a clear warning sign that your finances need improvement. With this information, you can make a more informed decision when setting spending and savings resolutions.
Define Your Goals
The next step is to define your financial goals. The worst mistake you can make is setting unspecific resolutions such as ‘spend less money’ or ‘save more money’. Make your goals specific, measurable and most importantly achievable for example; ‘spend $30 less on groceries each week’. Make sure you are not setting yourself up for failure by creating unrealistic goals. This may cause you to be discouraged and possibly abandon your financial goals all together.
Update Your Budget
Now that you have defined your goals, you need to work out how you are going to achieve them. The best way to do this is to evaluate and update your budget. To renew your budget you must track your spending for at least a month- This includes all expenses, regular and irregular. Either write down every purchase or review your bank statements over a month.
Next, create a new budget that incorporates your goals. For example cut out unnecessary expenses to save your ‘goal value’.
If you make your finances all work and no play, you may find yourself giving in or splurging out more often. It is important to reward yourself for all your hard work; this makes saving easier and more enjoyable. Treating yourself does not mean buying a brand new car, but instead small luxuries on occasion. It may be a new item of clothing or something nice for your home.