Let’s just come out and say it: Budgeting sucks. But so does being broke. Instead of being freaked out by getting your financial you-know-what together, it’s time to make a plan.
If you’ve made a pledge to get your money situation under control this year, you’re not alone. According to the recent Millennial Mindset on Money Survey by Capital One, 27 percent of Millennials say establishing a solid nest egg would give them the greatest feeling of financial accomplishment. And in order to get that nest egg growing, you’ve got to have your finances in order, right?
Pro Tip: Don’t try to do it all at once — you’ll get overwhelmed and give up. Instead, tackle just one step per day, and then walk away from it. Think baby steps. Before you know it, you’ll have a New Year’s resolution you can actually stick to.
Welcome to financial bootcamp.
The first step is to admit that you have a problem: you need to get your finances in order. We’ve all been there (I was once in $5000 of credit card debt!), but before you can expect to make major changes you need to admit there are things about your life and spending behavior that need changing.
So, repeat after me: I ADMIT I HAVE A PROBLEM!
Now make it your business to solve that problem this year.
Write down your 1-, 3-, 5- and 10-year goals for the Three F’s (Finance, Fun and Family). Goals are important, but they come with price tags, and we need to make sure you have enough money (or a plan to make enough money) to make those dreams a reality. Let’s make sure your goals are in sync with your bank account!
Gather the receipts from the bottom of your purse or briefcase and the shoebox on your desk, or print them if they’re digital receipts. Uncrinkle them. If you haven’t been saving your receipts on a regular basis, try to gather or print out your most recent bank and credit card account statements and lay them out next to the receipts.
Organize your receipts and/or statements into categories:
- Essentials: Housing, Food, Gas, Transportation — 70 percent of your budget should be going to this).
- Extras: The fun stuff like your mani/pedi or yoga class — 15 percent of your overall monthly budget.
- Endgame: Savings — 15 percent of your monthly budget.
Think of it as a Spending Plan to care for present and future You, which will allow you to live a “rich” life in every sense of the word.
Treat yourself to your morning latte. It will get you into work on time, if not early, and make for a more productive day, which might just lead to a bonus at the end of the year! You’re well on your way to a more money savvy 2016!
Create your LBD—Little Budget Diary. Keep your assets (i.e. money you make, money you have, etc.) on the left, liabilities (i.e. debts, loans, etc.) on the right.
We need to get an accurate picture of everything you’re spending so we can see where you can cut back (and, hopefully, where you have a little wiggle room for FUN!).
Order your credit report and check your credit score. 720 and higher = A+! Keep up the good work. Any lower than that and we should spend a little time on rehab (more to come on how to get that started!). Your credit report is like your financial report card, and you need a pretty solid one to apply for a loan or take out a mortgage. Make this the year you get the grade you deserve.
Switch one monthly bill, like cable or utilities, to your credit card and set it to auto-pay each month to rehab your credit score. This will show creditors that you are consistent and reliable with paying your bills on time, and increase your score. Also be sure to make a note to yourself that these funds will automatically be deducted from your account so that you’re not overspending (or over-saving!).
Revisit your LBD to calculate your net income. You need to know your worth so we can grow your worth. Simply calculate assets - liabilities = net worth.
Invest in yourself as a reward for kicking butt so far. Subscribe to a trade magazine or sign up for a class in order to get ahead at work and expand your horizons. It’s a small investment in yourself that will pay dividends down the road.
Revisit your 1-, 3-, 5-, 7- and 10-year goals for the Three F’s (Finance, Fun, and Family). How’s everything looking? Are your goals and finances more aligned than they were when we first started? Make any necessary adjustments now that you are back in control.
Call your main service providers (cable, cell phone, etc.) to negotiate a better rate. It’s the most satisfying way to start the new year. Make sure you are using the services you’re paying for (goodbye, bundle programs!) and threaten to leave for a competitor. Most providers will throw you a bone versus losing you as a customer.
Look at your monthly payments like your gym membership, TV streaming membership and magazine subscriptions. Cancel any you’re not using or look for cheaper alternatives, like a 10-pack of gym passes so you’re only paying for the days you actually go to the gym. Give yourself this audit not just at the beginning of the year, but at the start of each quarter as well!
Take a look at your budget and see if you now have any surplus funds that could be reallocated into savings. No longer driving to work? Done away with that costly monthly gym membership? Got a cash gift or bonus? Put that extra cash into savings.
Last day — you made it! CONGRATS! Celebrate with a dinner out, a trip to the movies or something special just for you (within reason, of course!). Remember: a financial diet is like a regular diet. You have to allow yourself to splurge every now and then to stay on track, so you don’t binge on a larger purchase later on.
It’s official: You made it through bootcamp, and your finances are certainly in better shape for a successful financial 2016. Keep it up and remember — just like any diet, taking care of your finances takes consistent work and attention. Now go get it together — and get it all!