Financial Contrarian #4: Got New Years (Debt) Resolutions? Plan Now!

Waiting Until Jan 1 is a Recipe for Failure

You probably plan to get a handle on your debt starting in the New Year. Don’t wake up on January 1 flat-footed and without a plan. Let’s talk about the things you should at least think about leading up to the big day. Let’s get started.

Listen to the Voices in Your Head

Do you hear that little voice? The one that’s in the background as you pull out your credit card in the stores and online during holiday shopping? It’s probably accompanied by a sense of dread, knowing what the bills are going to look like when they come in next month.

One way to quiet the voice and the dread is to tell yourself that you’re going to make a New Year’s resolution to get your financial house in order and pay off your debt. I hope that’s the case because you can’t afford (pardon the pun) to let this resolution slide.

Groggy and Foggy is Not the Way to Start

The thing is, if you wait until January 1 to get started, all groggy and foggy from the previous night’s festivities, you’re already behind and likely to fail. Imagine waking up on New Years Day wondering how and where to start. That’s not the way to hit the ground running!

Don’t let that happen. Start your battle plan now. Take a break from waving your credit card around in the malls to grab a fresh pad of paper, sharp pencil, and start plotting out your new budget for January.

Keep It Simple and Be Laser-Focused

Here’s a tip: Don’t try to budget out the whole year. It’s too much work. Laser-focus on the month ahead. Total up your net expected income for January. Some of you have variable income. If that’s the case, only list what you’re pretty sure you can expect, for example, your average for January in the past few years.

Necessary or Not? Want or Need?

Next, start listing your expected expenses. Start with the most critical (non-discretionary) ones. We call those the “four walls.” For example, your housing, transportation, utilities, and food. C’mon now, don’t include non-essentials, like that Starbucks or fast-food habit, at least for now. Essentials only, please. This is your non-discretionary (necessary) spending.

See what’s left after subtracting the non-discretionary expenses from your expected income. The remaining amount is your discretionary spending-things you can probably cut back on (although there are many ways to cut back on non-discretionary items like food and utilities). While totaling your discretionary items, ask yourself if each thing is a want or a need. Ask yourself if you can cut back on those amounts each month. You may be shocked at where your money is going by this point!

Arts & Crafts

If you’re not sure what you usually spend, grab a few months worth of bank and credit card statements and some different color highlighters and use one color for each category – entertainment, travel, etc. Don’t worry about stuff that happens once a year (vacation, Christmas, etc) right now.

Variable Income Tip

If you have a variable income, now’s the time to factor in the rest of it. List the discretionary expenses in priority order – highest to lowest priority. Apply any income above the initial amount you designated to these, and stop when it’s gone.

Pluses and Minuses

How did your budget work out after subtracting your discretionary and non-discretionary totals from your expected income? While you were doing that exercise, did some ways to cut back cross your mind? Good! This is the start of your planning for 2019, starting on New Year’s Day.

One-Time Expenses

If you have expenses that don’t occur every month, like a car insurance payment, water bill, vacation or holidays, deal with that next. Figure out the yearly total for each one, then divide it by twelve. Add that to your list of expenses for each month. Of course, you won’t pay those each month. You add those to what’s called a sinking fund, or savings fund. This can be an extra account at your bank, or just put it in your regular savings account each month and keep track of the totals. Wouldn’t it be great when holiday or vacation time rolls around to already have that in savings and not have to put it all on the credit card?

Next, Knock Down the Dominoes

Of course, you should be eying any extra amount in your budget to put toward your debt. That’s a whole ‘nother article, but while you’re at it, list your debts from smallest to largest and attack that first one with a vengeance, starting the first day of 2019. Knock those dominoes down, one by one! Interest rates are rising, get ahead of what’s to come. Paying the minimum amount due on your debts is the way to paying the maximum interest!

Staying on Track

Now, the hard part is staying on plan. Say you’re wandering around the mall, spot a sweet pair of kicks, and have the new-found discipline to wonder if you have enough room in your monthly clothing budget to buy them. I recommend the free EveryDollar app as an easy way to check from anywhere at any time where you’re at in your budget. Share it with your spouse or significant other so you can both stay on the same page. EveryDollar even handles your sinking funds!

Holiday Reading Time

Want another way to get started before January 1? Read or listen to a great book to get on track and plan your debt-free new year. I highly recommend  Your Money or Your Life by Vicki Robin.

Need Help? We’re Here for Ya

And, as always, we here at Money Coach Group stand ready to build your Debt-Free Plan for you, so you have it ready to go on January 1. It’s your roadmap and battle plan to slay your debt. Head to https://moneycoachgroup.com to check out our options. Holiday discounts expire soon! BE. DEBT. FREE!

Happy holidays and a happy new year to all of you.