Failure to achieve your New Year’s resolutions happens more often than you think. By February of each year, roughly 80% of all goal-setters give up.
So, what sets apart the 20% or so that achieve their goals? When it comes to financial resolutions, the budget is your key to success. As a financial plan of attack, it can help you with a variety of goals. Here’s why:
It’s hard making any positive change if you don’t know what’s going wrong in the first place. A budget lays it all out for you, bringing your attention to your income, bills, debt, and bad spending habits.
During the holidays, it’s easy to put everything on credit. But you can’t keep up with this bad habit into the new year. That’s because you promise your ability to pay off these purchases on future cash — cash you may or may not have.
If you can’t pay off a line of credit or credit card in full, you’ll carry over a balance that’s subject to interest, which will bump up the cost of borrowing.
For these reasons, a lender like Fora Credit recommends using a line of credit or credit card with discretion. You should only draw against a line of credit in an emergency when your savings fall short of the unexpected.
The unexpected tends to be unavoidable funeral costs, unforeseen auto repairs, and surprise parking tickets. It does not include routine spending or splurge items you can’t afford to pay off in full.
Your budget can help you lay off credit by identifying your spending limits, so you can focus on what you can afford without borrowing.
Bills are some of the most important items in your budget. Missing due dates (or not paying them at all) can have disastrous consequences in your life.
A budget can help you sidestep this trouble. It helps you organize your money, so you pay these bills before you spend it on other things.
You’ll also know your due dates better by entering your bills into a budget. Automate these payments with your bank so you never miss them.
Throughout the budgeting process, you’ll get a good look at your spending habits. More specifically, you’ll catch those bad habits that do nothing but waste your money.
Targeting these splurge items can help you free up cash that you can use to:
The more money you can save, the better. But don’t sacrifice everything in the here and now for tomorrow’s wins. You need some fun spending so that you don’t get discouraged by your budget.
Consider the 50-30-20 budget, which conserves just 20% of your take-home pay for savings. The rest is split between the essentials (50%) and fun (30%)
Financial New Year’s resolutions might be hard to achieve, but they’re easier when you use a budget.
