by Libby Ludwig
A Financial Resolution to Save
One of the most frequent New Year’s resolutions, aside from weight loss, is to save money and break a cycle of borrowing. Think about a typical year:
- You get your tax refund in February or March and pay off some debts, which feels amazing.
- You even set some aside for summer vacation with the kids.
- By the time fall comes around, things are a little tight again.
- By Christmas, you have a hot water heater about to go out and borrow for Christmas presents, making a vow to use 2021’s tax return and stimulus check to get caught back up.
Sound familiar? Let me tell you, you’re not alone.
Most people are pretty good about knowing their house payment, car payment, and planning for the insurance each month. The problem lies when we tell ourselves that’s all there is to the budget and every penny beyond that goes to flexible costs – food, entertainment, clothing, and the like.
Where we lose the battle is with irregular costs. Birthday presents. Home upkeep. Tires for the car. Tag renewals for the car. Double cost for winter heating bills. Kids growing out of last year’s warm weather clothes.
The solution? Separate savings for seasonal spending. It’s a financial resolution worth sticking with.
Step 1: Use a separate account
If you don’t already have a savings account, it’s highly recommended and extremely helpful. It’s a way to set aside funds from each paycheck for what’s coming up in the next few months and year. If having a savings account is novel, or you haven’t done a lot of budget planning, start with an account at the same bank as your checking account. Jump start your savings by having some of your paycheck automatically deposited there or automatic transfers set up. Start small until you do the other steps, but having this inertia in place makes it easier to have the energy for the rest.
Step 2: Know how much you can save
This is always a balancing act between what you need (upcoming costs) and what you have (the monthly expenses and budget). List out your monthly necessary costs like housing, utilities, transportation, etc. Realistically, how much do you need for flexible costs like food? How much is available for savings?
Step 3: Know how much you need
Think through the calendar. What costs will be coming up that you need to cover? What times of year do you feel the pinch and have to borrow from family or friends or the lender up the street? Reviewing this can help you identify the costs that you miss during your budget planning. Try to be as comprehensive as you can! If you need help thinking of possible expenses, we have a periodic expense worksheet you can use.
Step 4: Assess the plan
When you look at how much you can save (step 2) and how much you need (step 3) can you realistically put that much into savings each month, how do they compare? Are you able to regularly set aside what’s needed? Or are there always more things to pay than there is money? And let’s be real. It’s often the latter, or we wouldn’t perpetuate the cycle of borrowing each year. But looking at the patterns often helps us identify where the “hitch in the giddy-up” is. What is it that’s holding you back from breaking the cycle?
Truly, this isn’t so much a New Year’s resolution to save. It’s more than that. It’s a financial resolution to be in control of the finances and to learn about ourselves and spending patterns. Being engaged and mindful about your money is helpful on so many levels. And the resolution to save is just the 2021 expression of it.
If you find you’re struggling with any of the steps, let us come alongside you. Creating a plan like this is exactly what our Financial Health Plan is here to do. Let us walk with you through reviewing the current spending, upcoming needs, and how to prioritize the funds you have to meet your needs.
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