Author: Fundamental Advisory and Consulting, LLC
For many, a new year represents a time to push the reset button and get back on track.
This can take many forms. Common New Year’s resolutions include making healthier choices when it comes to meals, getting more exercise, or even becoming more organized. And then there are the ones relating to personal finance.
So how can you make sure that you’re getting off on the right foot for 2024?
The obvious answer here is to make a budget and stick to it. Unfortunately, making a budget can be hard, and sticking to it can be even harder, so maybe it’s a good idea to be slightly less ambitious straight out of the gate. After all, you need to be able to walk before you can run.
Instead of building a budget, start with simply understanding where your money goes. Make a list of your recurring expenses, including everything from your rent or house payment all the way through the eight streaming service subscriptions you’ve managed to sign up for. Leave no stone unturned here, and search your bank and credit card statements to find every last item, including utilities.
Once you have your list of expenses, it’s time to be honest about what you need and want, and what you can easily do without. Since the focus here is on starting small, be honest about what you can eliminate without it resulting in new spending to take its place.
Will this change your entire life? No, and that is what will make this a relatively painless exercise.
Now comes the fun part: whatever spending you cut, you’re going to set it aside. This can take the form of recurring contributions to a savings account or perhaps putting it into a Certificate of Deposit (CD) with a relatively short term. The goal here isn’t to maximize the return on your investment, but to create a rainy day fund that you can draw upon in an emergency.
Right now, the economic outlook can best be described as uncertain. We’ve gone through a brief recession caused by the pandemic, fiscal and monetary stimulus, high inflation, significant home price appreciation, and finally high interest rates in an effort to cool things off. And depending on who you listen to, there’s either a recession on the horizon or perhaps a soft landing.
With the outlook being so uncertain, the best thing you can do is to be prepared. Trimming expenses gives you financial flexibility. Building a rainy day fund gives you a financial cushion, and those funds will go even further if you’ve already pared back unnecessary expenses.
The great thing about this exercise is that you can repeat it monthly. Some months, you may discover new spending to cut, and other months you might be happy keeping things the way they are.
Eventually, it becomes a habit. You might even be ready to try creating a budget by the time 2025 rolls around.