January is already here! Can you believe it? 2012 has fallen from the calendar, leaving you — and everyone else — to wonder if you’ve done enough during the year gone by, and if you can do more in the next one.
Many people love January because it’s like a giant reset button for their life; it’s a chance to renew hope that the coming year will be better than the last.
A new year gives you the chance to recharge yourself and prepare for brand new challenges.
It’s probably not a coincidence that January is Financial Awareness Month.
That’s what we’re going to do together right now — become financially aware of ourselves enough to make our goals for the coming year easier to hit.
Accurate financial awareness will give you a clear view of where you are and where you want to go, and most importantly, how to get there.
The best part is that finding your way isn’t hard. Follow these four simple steps, and you can start your path to financial renewal and awareness.
Step 1: Tally everything you owe.
The first step is to establish what you owe. Do you owe money on your car? Your home? Do you have credit cards with high balances? Are you in debt to any family or friends? Tally all of this up in a T-Chart that looks like this:
(car, house, boat, business, etc)
Step 2: Figure out your net worth.
Determine how much you have in assets. Total everything you have to your name, including cash, checking accounts, stocks, bonds, annuity, etc.
Once you’ve got that number, subtract what you owe (from step 1). That’s how much you’re worth.
Step 3: List your money goals for 2013.
Imagine your ideal money situation. Articulate your dreams. Be sure to make them realistic, though at least slightly higher than what you can easily achieve. If you only build goals around what you know you can do, you’re selling yourself short. You want and deserve more, but more is always easier if planned from the start.
If you owe $20K in debt, how much can you realistically pay off? What if you set a goal beyond that, then work furiously for it? You’ll achieve, grow, and set yourself up for more success the following year. Make a goal chart like the one below.
My Money Goals for 2013
1. Save X
2. Pay off Y
Step 4: Create a budget.
Once you clearly understand your goals, setting your budget should be easy. The word “budget” brings a tear to many an eye, so be prepared to do the hard work of designing the budget that’s best for you. The key lies in setting budgeting goals that let you live with boundaries, rather than restraints.
Types of Budgets
There are many types of budgets, but they all have one thing in common: documentation. It doesn’t matter what type of budget you decide on; what matters most is that you track what you’re spending. You can do this with a simple spreadsheet.
The Comprehensive Budget
The comprehensive budget keeps up with every detail; it also requires you to first establish a plan for what you’re going to spend. You’ll list what you have coming in, what you must spend on essentials each month, and what you’ll have available for unexpected expenses. As your bills come in, you’ll record your actual spending beside your projected totals.
I run screaming if I see a comprehensive budget coming, as I prefer a more lenient version. This type of budget is good for people who are looking for a complete financial overhaul and need to keep a very tight leash on their spending.
The Basic Budget
With this type of budget, you’ll simply track your monthly living expenses, while recording all non-essential spending. You don’t have to keep up with receipts or worry about every penny. Allot yourself X for entertainment or emergencies, then set it aside. Once it’s gone, it’s gone.
The Cash Budget
Keep your living expenses separate from your fun money. Use cash for grocery shopping, fueling up at the pump, going out, etc. When you spend all of your cash, don’t dip into your non-cash resources to make up the difference.
As with all budgets, your goal is to take steps toward your goal of saving more or reducing debt. Make sure you factor in additional payments to your savings or debts before withdrawing excess cash.
If you take these steps to get to know your money this Financial Awareness Month, you’ll be able to make 2013 the year you want it to be.
Happy Financial Awareness Month! What’s one step you’re taking this month towards better financial awareness?