The new year is in full swing, and we’re starting to get serious about our finances after the opulence of the holidays. My husband and I are putting together a plan for our new year finances, and I wanted to share some of the tips that have helped set us up for a fiscally savvy 2020!
Keep in mind that I am not a registered financial advisor. My advice is from my personal experience and research. Share your own tips in the comments section below!
Reprioritize Debt Repayments
The holiday season can place added stress on your bank account — and in some cases, your credit card balance. Americans with credit card debt add an average of $1,054 to their balance over the holidays. (Yes, my Canadian friends, that’s in USD!) Compared to other repayment obligations, like student loans, credit card balances typically come with super high interest. So this might be the time to rethink your repayment and savings strategy.
The key here is to pay off your high-interest balances as soon as possible, before you start racking up interest fees. If you have non-emergency fund savings available to you (i.e. not locked up in a registered account), also consider using these savings to take out that high-interest debt. A quick gut check: does the interest you earn by saving the money (e.g. in a savings account) fully cover the interest you’d be paying on that credit card balance? If not, it’s more cost efficient to pay down that balance ASAP.
Side Note: I wrote in a previous blog post that I put most of my purchases on a credit card for the perks. Please remember that I only do this if I’m able to pay off the balance in full before any interest is applied.
Take it Slow with your New Year’s Resolutions
I know how it goes. You start the year with grand plans to go to the gym more often, meditate daily, cook your meals at home, read more, travel more… And then you start shopping:
- Fancy gym membership and new workout gear
- Meditation app annual fee
- Meal subscription box and/or more Tupperware than you know what to do with
- An eReader — oh, might as well just buy an iPad, right?
- New luggage and overpriced plane tickets
Even with the best intentions, or even the best accountability, not all of these goals will pan out the way you think. That’s not to say you won’t succeed! But your definition of success for these goals might change over time, and those purchases might not be as useful as you assumed when splurging in January.
For example, you might find that you prefer running or yoga over the gym, so you didn’t really need that membership after all. You can easily find guided meditations on YouTube and tons of books at — where else? — the library. There are a lot of resolutions that you can ease into as well, like cooking at home. Start with a couple of nights a week and ramp up from there, so you don’t start the year with spoiled produce and disappointment. And as for travel, take some time to do your research! Find destinations, seasons, modes of transportation, and activities that fit your budget and intentions for a great trip.
Take on a Closet Clean-Out
Did you receive any clothing as gifts this year? (Or did you treat yourself to a new outfit during those Boxing Day sales?) It’s time to take inventory of the clothing you already have.
I recommend a full-on Marie Kondo approach here if you can swing it. Literally pull out every single item of clothing you own and put them in one spot. Go through each category (shirts, sweaters, jeans, etc.) and choose which articles of clothing “spark joy” (to keep) and which don’t (don’t fit, not your style anymore, etc.). And yes, the items that don’t “spark joy” might be the ones you just received. That’s okay. The purpose of a gift is to be received, and it has served that purpose already!
Decide on the most profitable and sustainable way to remove these items from your wardrobe — return them, sell them on consignment, or donate them to a reputable charity. And if they’re not in good enough condition to donate, check out this article outlining six alternative uses for your old clothes. Even if you don’t make money off this clean-out, at least you won’t feel tempted to buy a bigger dresser!
Create Your 2020 Financial Plan
The start of a brand new year is the perfect time to map out your goals and intentions, especially from a financial perspective. Start by taking a holistic look at your current situation: your assets, liabilities, and any big upcoming purchases that you need to plan for. Walk through your recurring bills as well as your variable expenses (e.g. groceries, gas) to figure out how much you have to work with out of your after-tax income. (Don’t include your discretionary spending, such as coffee shops and cable TV, in that “mandatory” expenses list! Also, if your income is variable, try to budget out of the lower end of your typical range so that any additional income can go toward your goals.)
Then begin allocating your funds toward various savings, investing, debt repayment, and lifestyle goals. Be realistic here! For example, if the holidays were tough on your bank account this year, start saving for the 2020 holiday season now. It’ll be easier to stomach when the expense is split across 12 months instead of just 1. However, if you don’t yet have an emergency fund that can cover 3-6 months of those expenses you just mapped out, treat that fund as your #1 priority.
Quick note: don’t miss your contribution deadlines! This will depend on your financial situation and your country. For my fellow Canadians, remember that your RRSP contribution deadline this year is March 2, 2020!
Organize Your Bank Accounts
No-fee, no-interest bank accounts are your best friend when you’re starting out. Splitting your money into multiple accounts is a concrete, visual way to differentiate between “needs” money, “wants” money, and savings. You could open a new savings account for a short-term goal, such as a vacation, as a way of motivating yourself to watch that sum grow to the amount you need. And if you’re the kind of person that will spend your money immediately if you see a non-zero balance, you might even consider opening an account at a different bank to remove that temptation.
I’ll go into detail on my day-to-day money organization in a future post! But if getting your finances (and everything else) organized is your goal for 2020, book a free call with me today! Let’s map out your path to a “put together” life this year.
What are your best tips for improving your new year finances? Share your thoughts in the comments below!
