With the new year upon us, it’s everyone’s favourite time: New Year’s Resolution time! Beside getting in better shape, improving our money situation is another popular goal that we set for ourselves. Unfortunately, this is often easier said than done.
Using fitness again as an example, many of us sign up for the gym in January, but by the first week of February, we’re lucky if we’ve set foot inside the gym more than once or twice. To improve your chances of success, not only is it important to set money goals, it’s also important to come up with an action plan to achieve them (having a money coach in your corner certainly helps, too).
Here are three financial goals you can set for yourself to start 2018 off right.
Set Money Goals
I’m a big fan of goal setting. It’s how I bought a house at age 27 in Toronto and paid it off in three years by age 30. But goal setting on its own isn’t enough. It helps to get specific and break your goals down into mini-goals.
For example, setting yourself the goal of buying a house is great, but unless you figure out how much you need to save from each paycheque and automate your savings, it’s not likely to happen. Let’s say you want buy a $500,000 condo in three years in downtown Toronto with a five percent down payment. Then you’ll need to save $25,000. That’s a lot of moolah! But when you figure out you only need to set aside $160 per week, suddenly the impossible seems possible. That’s the power of goal setting!
By setting yourself money goals, it helps motivate you and keeps you accountable to yourself. But oftentimes that’s simply isn’t enough. That’s when it helps to have a money coach in your corner. A money coach is like your own personal trainer for your money. He helps keep you motivated, so that your money goals one day become a reality.
Track Your Spending
Are you ever shocked at how much you spent in a month when you look at your credit card statement? You’re not alone. Spending $20 “here and there” may not seem like a lot in the moment, but it can sure as heck add up to a lot at the end of the month when your credit card statement arrives.
Credit cards are largely to blame for our overspending. While credit cards offer plenty of benefits – building your credit score, extended warranties and cash flow management, perhaps the biggest downside is that they make it so easy to overspend (the term “retail therapy” comes to mind).
To avoid “credit card statement shock,” get in the habit of reviewing your credit card spending at least once a week. (Most of us check our smartphones dozens of times a day, so logging into your bank’s app once a week shouldn’t be that much of a stretch.) If you see that you’ve overspend, you can adjust your spending for the rest of the month, so you don’t end up in debt.
Pay Off High-Interest Debt
I know interest rates are near record lows, but they aren’t likely to stay there forever. Take advantage of low rates and aim to pay off high-interest debt, such as credit card debt and payday loans sooner rather than later.
There are two popular methods for paying off debt: the debt-snowball method and debt stacking method. Using the debt-snowball method, you start by paying off the debt with the smallest balance first, while paying the minimum on your other debt. Using the second method, the debt stacking method, you start by paying off the consumer debt with the highest interest rate first.
It’s up to you which method you’d like to go with, but as long as you choose one and stick to it, you’ll be well on your way to debt-freedom. Again, a money coach can help you figure out which method makes the most sense and help keep you motivated to pay down your debt.
Once you have your high-interest debt taken care of, then you can think of using the extra cash flow to pay down your mortgage sooner.