How to be Financially Ready for the New Year
Being financially ready is a sign that you’re responsible, mature, and completely independent. However, it’s extra special to be financially ready when the new year comes because it can be a part of your new year’s resolutions.
The new year symbolizes a fresh start for everyone, so now is the time to evaluate your finances and get yourself on track for 2018.
Follow these smart ways to handle your finances this coming year.
- Assess Your Income
Whether you’re a full-time employee, a business man or entrepreneur, or a freelancer, it’s important to assess your monthly income.
List down all your earnings to determine how much money comes in every month. This will help you create and maintain a realistic budget for the new year.
If your income is irregular, then list down how much you earned for the last three months to get your base monthly income. For instance, you earned Php40,000 in September, Php50,000 in October, and Php45,000 in November. Use Php40,000 as your base monthly income.
- Track Your Expenses
List down all your expenses. Take all your fixed and variable expenses into account. Start with your necessities such as housing, utilities, food, transportation, and medical bills if you’re on any maintenance medication.
Then, think about how much you spent on your “wants” for the past three months and put them under personal or leisure activities. If you’re paying for health or life insurance, list them down, too. These expenses go under savings and investments.
Tracking your expenses will help you figure out what and how you can reduce them later on.
- Create and Maintain a Budget You Can Follow
Most people create a budget every new year, but fail to follow them—much like their other new year’s resolutions. The main reason for failure to comply with their budget is that they didn’t create a realistic one.
Don’t forget that while leisure, travel, and entertainment activities are stuff we don’t really need, it’s important for your personal growth and sanity.
Your work may sometimes become stressful, and unwinding will help you rejuvenate and restart your mind. So, don’t remove it, but include it in your budget.
Follow the 50 / 20 / 30 rule for minimalist budgeting.
- No more than 50% of your monthly income goes into your necessities.
- No less than 20% of your income goes into your savings and investments.
- No more than 30% of your income goes into personal and leisure activities.
So, if you’re earning Php40,000 a month, Php20,000 will be spent for your necessities, Php10,000 will be set aside for your savings or retirement fund, and Php10,000 for travel, shopping, watching movies, and other leisure activities. Anything left over can be added to your savings and investments.
Revisit the expenses you tracked. Are your necessities amounting to more than Php20,000 a month? If so, figure out how you can reduce them. Instead of taking a taxi or Uber to and from work, maybe you can take the bus or train.
Ultimately, it’s up to you how you can juggle your budget and reduce your expenses. But, the 50 / 20 / 30 rule will help you stay on track.
- Set Financial Goals
Financial goals will help you stay motivated throughout the year. Ask yourself what kind of life do you want to have ten years from now. Of course, financial independence and success is every man’s dream, so set short-term and long-term goals for yourself.
For instance, a long-term goal would be to purchase a home by 2028, while a short-term goal would be to save at least 20% of your income each month.
Be as specific as you can be. Create a list of your financial goals, and organize them according to priority.
- Pawn Off Some Items
The new year is an excellent time to welcome a fresh start. Dive into your closet, and you’ll be surprised at the number of valuables you have hidden, which you don’t use anymore and just take up space in your home.
What better way to declutter your home by pawning them off? Go to an online pawning site and conveniently earn extra cash.
The new year is a fresh start for you, so use it as an opportunity to get your finances in order. Be financially prepared and ready for anything that comes your way this 2018!