Whether you’re looking to maintain the financial progress you made this year or you’re working on establishing some new financial resolutions in 2016, I’m just quickly bouncing into your inbox one last time this year to give you my Top 10 Money Tips of 2015!
1. Keep the expense categories in your budget to a minimum.
Don’t just minimize your expenses. Minimize your expense categories! Rather than having a separate category in your budget for each expense, group your variable expenses together. The main goal of budgeting isn’t to spend exactly $200 on dining out; it’s to not spend more money than you have or spending money at the expense of your financial goals. So if you budgeted $300 for groceries and $200 on dining out, but spent $450 on dining out and $50 on groceries, NOBODY CARES. You still only spent $500 on food.
2. Establish a “personal escrow” for all of your irregular expenses this year.
Rather than budgeting $100 for a vacation, $50 for vet bills, $100 for car insurance, and $50 for gifts, just create a master “personal escrow” budget of $300/month to draw from as these expenses arise. This ties into minimizing expense categories, but it’s also a great budgeting hack. Every month, transfer your personal escrow money to a separate checking account (preferably interest checking!) so it's like you already spent the money even though you're rolling some of it over every month.
3. Focus on paying off one debt at a time.
The simplest way to pay down debt without feeling like you’re juggling too much is to focus on one debt at a time. Now, this doesn’t mean that you’re just going to stop paying your other debts though! You’re just going to put those minimum payments on autopilot and focus all of your efforts on the first one you want to pay off. After that’s paid off, you’ll refocus on the next one, and then the next one until they’re gone. Otherwise, paying off your debt is just going to feel like a game of whack-a-mole and that has got to be the most demented arcade game ever invented.
4. Write yourself fool-proof instructions.
Because I have a really poor sense of time, I often question how much spending I have left in a month or whether I paid a bill on time. The random moments of panic got the best of me so I started writing out a tutorial for my monthly spending as if I’m giving driving directions or sharing a recipe with a friend. Go through your bank and credit card statements and bills and plot out your subscriptions and due dates in a timeline format. “Netflix gets charged on the 8th, the electric bill is due on the 15th,…” and so forth. I like to do this in a spreadsheet so I can sort it in date order or you can write it on index cards or little scraps of paper and put it in date order physically. Then, check in on your instructions weekly to make sure you did everything you were supposed to do.
5. Refresh your budget every six months.
Imagine doing the same routine every single day for the rest of your life. If you were going on a diet and had to eat the same seven pre-cooked dinners each week and perform the same exercise regimen each morning, how long do you think you’d keep it up? Budgeting shouldn’t be some background operation you set and then forget. The best way to stay on track with your budget is to consciously interact with it. If you can balance your budget in your sleep, you might be missing something that’s not in your best financial interest. Six months is the perfect time frame to check in and switch things up a bit. It’s a time period that is long enough to measure your plan’s past performance, yet short enough to still change course if needed.
6. Focus on your income, not just your expenses.
Cutting expenses is like dieting and increasing your income is like exercising – we can eat more brownies if we get a little more active. I have found that when my clients approach their finances from a position of earning power rather than only spending restrictions, they reach their financial goals faster – and not just because they have more money to work with! They feel more empowered and less victimized. The goal of a for-profit business isn’t just to slash costs to increase profitability (although that does help, too!), but increased earnings help as well.
7. If you’re in a domestic partnership, you need to talk money with your honey.
Ugh, that’s so cheesy I can’t believe I said that but it’s so true. You guys gotta get on the same page. I’m no relationship counselor but let’s be real – we all know that money and financial issues are a huge strain on relationships. (Dude, they’re a huge strain on our relationships with ourselves!) In a financial partnership, you have two different people with two different personalities and two separate money histories and financial habits going into one master household financial ecosystem and it’s like “Fall in love. Check. Bathroom routine set. Check. Money stuff. Not so much.” Have a money date night and make it a habit. It might be a little awkward or scary, but do it anyway. You’ll thank me later.
8. Run your loan through an amortization schedule before you take out a new loan.
A small part of me dies every time I hear someone say “It’s only $X per month!” While there are times you’re only offered monthly payments, like a Netflix subscription or a gym membership, I like to look at the total cost of something. My $30/month gym membership costs me $360 per year, Netflix is $120 per year, and those are numbers I am comfortable with. And when it comes to debt, we all have the tendency to think in terms of how affordable the monthly payments are. We tend to disregard the total cost of the interest over the repayment period and focus on whether or not we have room in our monthly budgets to cover the monthly payments. And that, my friend, is getting in the way of your financial goals. When it comes to debt, you should totally always definitely calculate the total money paid (including interest!) over the life of the loan. And that figure should influence your decision to choose debt, not the monthly payment.
9. Invest while you shop!
Instead of a product, you can invest in yourself, and use your everyday spending to purchase things that will yield long-term returns for your body, mind, and general well-being. If you look at your purchases holistically – as investments in yourself, your family, your environment – you will find yourself getting more and more conscious about your spending as you align your cash-flow with your heart (awww!). When you buy the right things, you can indulge in a little retail therapy for things that are actually good for you and won’t result in spending remorse!
10. Track your net worth over time.
While I try to remind clients not to get too fixated on their net worth (Your net worth has nothing to do with your self worth!), it is a great figure to track overall progress. Add up all of your assets and subtract all of your debts and watch this figure grow over time as you follow your budget, pay down debt and stash away savings. Looking at the big picture and the change in your net worth over time is guaranteed to keep your motivated just as you would be to see your jeans loosen around the waist.