Certain milestones tend to bring on fresh determination to organize one's finances, get out of debt – or both. A big birthday. A new job. The birth of your first child. And, of course, New Year's Day. Whatever your motivation – and no matter how many times you may have tried before – this will be the year you actually do it. Following this series of financial planning steps is a great way to start.
1. Manage budget blowouts
Whether it's the holidays or a spate of wedding invitations, all of us face periods of time when money just seems to fly out of our hands, and it seems hopeless to stick to a spending plan. Kathleen Grace, CFP, CIMA, and author of Prince Not So Charming, has a few easy, but often overlooked, financial planning tips for making these instances less blowout and more blip.
- The first is to say no. "As a culture, we seem more comfortable taking on personal hardship than saying no to someone we like. But it's OK to say no." While it may not be reasonable to refrain from buying any gifts in December, it may be okay to take a pass on the office gift exchange. "It took me a while to figure out, but I really can say no to some invitations and office grab bags without people being upset with me," shares Dawn Rossetti, an office manager with two children. "It's liberating, and has made me feel more in control of my budget."
- The second is to put distance between yourself and the temptation. This can be taken literally – just walk away from the item or situation. You might be standing in front of the ultra hi-def TV you've always wanted, on sale. Just walk off. You don't even need to leave the store, just so long as you can't see it. And think about whether you can't live with the television sitting in your living room for just a little while longer. Odds are, you'll decide it's still fine. It's amazing how often this works, insists Grace. Of course, no matter what, you're still going to incur some extra expense during the holidays or wedding season. The first way to attack it is to figure out where you can pull from to pay it off.
2. Investigate whether a balance transfer would make sense
If you're carrying multiple balances on different credit card accounts, you may be able to streamline your monthly bill-paying and save money by looking into a balance transfer. By making a balance transfer, you can consolidate debt – not only credit cards, but debt such as loans and medical bills as well – by moving it to one credit card with a low interest rate for balance transfers. What you'll need to think about: the length of the introductory period (it should be long enough that you think you'll be able to pay off the transfer in that amount of time); how much the balance transfer fee is; and what the interest rate will be after that introductory period (just in case). To learn three ways to manage a balance transfer, check out How to Know When a Balance Transfer Could be a Smart Move.
3. Plan your next car purchase, whether you need one or not
A car is totaled in an accident, or that kerplunking sound turns out to be a major repair that the mechanic says "isn't worth it." Car shopping when you absolutely must rarely results in certainty that you got the most for your money. If you're a car owner, you can finally get ahead of that common conundrum by figuring out a budget for your next set of wheels now, before you need it.
"We think of budget in terms of day-to-day expenses, but not a big purchase like a car," says Professor Wanda Foster, MBA, who teaches finance at Concordia University Chicago. "In that case, the mindset seems to be getting the one that feels right, which is fine, as long as you can afford the one that feels right." You need to go into the dealership knowing your comfort budget and your "push" budget. "Think in terms of how much you can afford for a loan payment each month," says Foster. "Exactly, not ballpark! Say to the dealer, 'I can afford a $200 car payment. I can't buy a car today otherwise.'"
To come up with an accurate number, you'll need to research insurance costs as well as take your existing expenses into account. Foster says you also need to have a second higher number in your back pocket: "how high you can push it, but it shouldn't be much more." For example, a push budget for a $200 comfort budget might be $240. "In that case, you need to have decided exactly what you are going to give up to make up the difference. That's important because you'll know if pulling out the push budget is worth it. "Do you like the more expensive car enough to give up your monthly dinner with friends?" explains Foster.
4. Consider calling in a professional
Yes, a money coach, of sorts. If you've set goals for your finances before but never followed through, Hannah McQueen, author of The Perfect Balance: How to Get Ahead Financially and Still Have a Life, makes a compelling case for getting outside help.
Financial tasks that are complex, important, and emotional can easily overwhelm us, so procrastination sets in. Plus, "it takes a lot of time, and we are all time-poor," says McQueen. Lewis J. Altfest, Ph.D., Associate Professor of Finance at the Lubin School of Business at Pace University and author of the academic textbook Personal Financial Planning (McGraw Hill), agrees. "If you have the money, getting a financial planner to manage the benchmarks for your various savings goals is a good idea."
For more ways to help make progress toward your financial goals, check out 7 Steps to De-Stress and Master Your Financial Health.