It’s the most wonderful time of the year, when we’re all stuffing ourselves silly with sugar cookies and listening to “Last Christmas” on repeat. (Just us?)
It’s time to celebrate the previous year, but it’s also the perfect time for some reflection about the year ahead. After all, once December passes, we’ll be bombarded with “New Year, New You” messages about how this will finally be the year that you get fit, KonMari your house and achieve your financial goals.
We can’t help you with all of those goals, but we can help make the last one a reality. Read on for some money moves you should start making now to set you up for a killer 2020.
1. Set Your Financial Goals for the Coming Year
When you think ahead to the end of 2020, what would make you feel super accomplished? What if you cut your credit card debt by half? What if you were able to boost your savings account to four — or even five — figures? What if you saved enough to make some long-overdue improvements to your house? Or build up that emergency fund you know you need to have?
Think about what you want to celebrate at the end of 2020, and then set some goals to help you get there.
We’re fans of the SMART method of goal-setting. A SMART goal is:
For instance, “become financially secure” isn’t considered a SMART goal because it’s ambiguous.
On the other hand, “pay off $5,000 in student debt by the end of 2020” would be considered SMART because it’s specific, measurable and timely.
By thinking through your financial goals in this way, you’ll have more clarity about what you’re actually trying to do, and that will give you a better sense of how to allocate your resources and energy in the year to come.
(And if you’d rather not bother with trying to craft your own goals, you can use our step-by-step guide to setting financial goals you can actually attain.)
2. Review Your Spending Over the Past Year (and Be Honest About It)
OK, we know this isn’t going to be fun. In fact, it’s probably going to be pretty tedious. That’s why we suggest you put on your comfiest clothes, pour your favorite adult beverage and carve out some time to focus.
Here’s a shortcut: If you use online banking or an app like You Need a Budget or Mint, you likely have access to graphs that show how much of your income went to specific spending categories, like food, entertainment and household expenses.
However, you can still do this without digital tools — it’ll just take more time and elbow grease. This post offers some good tips to help you get started with expense tracking.
Why is this so important? So you know how you’re actually spending your money. You might think you’ve haven’t got a single penny to spare and that’s why tumbleweeds are rolling through your savings account, but tracking your expenses can reveal a different reality, one where you’ve actually spent quite a bit of money on, say, scented candles rescued from the clearance end caps at Target. (Not that we know anyone who does this…)
If you’re having trouble achieving your financial goals and can’t figure out why, knowing exactly where your money goes is the first step to bringing your actions in line with your goals.
Once you’ve tracked your expenses, you’re ready to move on to the next step.
3. Make a Budget That Works — Finally
Listen, we know a lot of people don’t bother with a budget. We surveyed 1,500 Penny Hoarder readers in April 2019 and found that 40% of them didn’t have a budget.
But you really, really do need a budget. This post outlines five good reasons you should have a budget, including helping you finally break the paycheck-to-paycheck cycle and identify where you’re overspending.
If you’ve never set up a budget before, read this step-by-step guide to budgeting for beginners. We’ve also outlined four of the most popular budgeting styles. Look for one that best matches your needs and personality.
You can try out one of these budgeting apps we love, or go old-school with a pen and paper and set up a bullet journal, a budget binder or an envelope system. Our motto: If it works for you, then it works.
But what if you’ve tried creating budgets in the past, and you always seem to blow them? Then now is the time to reassess your approach. It’s possible your previous budgets have been so unrealistic that, unless you lived in your parents’ garage and ate nothing but rice and beans, you were never actually going to adhere to them.
Be honest about what you’re capable of and what you need. If that means including a line item for clearance candles from Target, then so be it.
4. Pull Your Credit Reports and Examine Them for Errors
This is another task that should be part of your regular financial maintenance, but a lot of us either forget or we don’t really see the point.
But when you go over your credit reports with a magnifying glass, here’s what you might find:
1. Accounts that aren’t yours. It’s possible you have accounts on your credit report that actually belong to someone with a similar name. Do you, Karen Smith, really want to have the overdue Dillards’ charge card belonging to a Karen Smythe on your credit report?
2. Accounts you didn’t realize were delinquent. Maybe your dentist’s office repeatedly sent the bill to the wrong address until the unpaid bill wound up in collections, leaving a giant black mark on your credit report, and you weren’t aware of any of this until your application for a car loan or mortgage was turned down.
3. Outdated or incorrect information about your accounts. Perhaps you paid off a loan last year that’s still showing up as unpaid, or your credit card balance is listed as being much higher than it’s ever been. These could significantly ding your credit score, and those three little numbers hold a lot of power over your ability to access credit in the future.
All of these errors can be disputed by contacting the appropriate credit bureau. Here’s how to do it.
Before you shrug this off as something that’s unlikely to happen, consider that one out of every five credit reports has a possible error on it.
5. Make a Plan for Retirement and Stick to It
We don’t have to tell you that a lot of people have not saved up much for retirement. All you have to do is read Dear Penny’s columns to see that.
Instead of becoming yet another statistic, why not make 2020 the year you finally take retirement seriously? (That goes for you too, millennials — don’t think we haven’t noticed that many of you are in your 30s now.)
We broke down the process of retirement planning into a five-step guide that’ll help you get started.
The first thing you’ll need to decide is which kind of retirement account you want to set up. These accounts provide tax advantages for contributing to them, so you’re paying less in taxes and saving for the future — definitely a win-win!
If your employer offers a 401(k), make sure you’ve signed up for it. And if your employer offers a 401(k) match, contribute at least enough to take full advantage of it. After all, that match is part of your compensation. You’re entitled to it!
And if you’ve left previous jobs with 401(k)s, roll them over to your new retirement account. The process can admittedly be annoying, but it’s well worth your time.
If you don’t have access to a 401(k), you’ve still got options, including IRAs and Roth IRAs. This post has a list of questions you should ask yourself when trying to decide among them.
Once you’ve got your retirement account set up, contribute to it on a regular basis. It doesn’t matter if you can only put in $25 a month it all adds up.
6. Celebrate Your Wins!
We know this post has been all about how to do better going forward, but we also know you’ve probably accomplished some pretty good stuff in 2019 too.
Maybe you’ve started looking for ways to bring in more income through a side hustle, or you’ve steadily chipped away at your student debt. Maybe you started educating yourself about personal finance — after all, you’re here, aren’t you?
Take a few minutes to think about what you’ve done in the past year that you’re proud of, and give yourself some time to really let that feeling of pride sink in.
And now remember that feeling throughout the coming year, especially when things get hard and you encounter setbacks (because you inevitably will). Trust that if you stick to your plan, you’ll get to experience that delicious feeling of satisfaction again this time next year.
Caitlin Constantine is the deputy managing editor of The Penny Hoarder.