3 Ways to Make Budgeting a Success in the New Year 2017.

2016 is gone. 2017 is here. A common theme this time of year is determining what is important for people to accomplish in the new year. Many people will use this time of the year for self-reflection. They will pick a part or multiple parts of their lives where they are seeking self-improvement and set goals to better themselves in those areas.

One of the most common examples of this is people making a pledge to themselves that they will start to work out on a more consistent basis. When you walk into your gym on an early January morning you may see double the amount of people than usual. By March, it likely has died back down to normal.

The root of this bias is that individuals don’t take the time to look at a goal in a realistic manner, which causes many to fail. A study done by the University of Scranton shows that only about 8% of people actually achieve their resolutions. Why is this, and how does it relate to personal finance?

It is human nature to want to be ambitious and optimistic when it comes to our abilities. The issue is when that ambition leads to unrealistic expectations. How many times have you told yourself you are going to start using a budget only to ignore it within the first few days, weeks or months? Let’s discuss some strategies to help you avoid this problem.

 

Take Baby Steps

Be reasonable in assessing where you are with your finances. We all have lots that we want to improve on but we can’t tackle everything at once. To get your finances to a point where they are not adding any anxiety to your life, try listing out all of the various finance-related topics you would like to improve on and prioritize them as they matter to you. Start by taking on one or two at a time.

We have too many people say, “Here is what I’m spending, is that too much?” The problem with that question you are the only one that can answer it. Every choice you make has an opportunity cost. If you want to buy a house in five years, you may need to spend less now on something that you currently enjoy. Everything has trade-offs. Instead of only looking at the big picture, focus on one goal at a time and see how it goes.

If one of your goals is to start budgeting and you have never set a budget before, don’t start out by giving yourself super-strict boundaries. Instead, start by creating good habits one at a time. For example, if you want to pay off all of your debt, take a look at how much debt you have and create a realistic plan to pay it off.

 

Be Specific

Building on the point above, it is important to be specific when setting goals for yourself. Being specific is not the same as being too strict. Instead of a plan that says “I am going to save more this year,” or “I am going to save N1,000,000 this year,” try specifying what that means to you. For example, “I will take N20,000 from each paycheck and put it into a savings account.” By giving yourself a tangible goal, you’ll be better able to judge if you achieved your goal.

In addition to setting these goals, try to really think about what it is that you are trying to accomplish. Why do you want to save an extra N20,000 each paycheck? Are you saving up for a house? Trying to pay off debt? Building up an emergency fund? When you add purpose to your goals, it makes it easy to understand what it is and why you are trying to accomplish it.

 

Stay Accountable

This comes down to knowing yourself. Accept who you are and what that means. Do you feel that you are someone who might let issues compound and start to push them to the side? Think about filling in a friend or family member on your goals. Set times to check in with them and go over your progress. If you want to go to the gym three days a week, think about getting a workout partner. If you want to save an extra N20,000 from each paycheck, see if there is a friend that has the same goal and you can do it together, comparing how it’s going throughout the journey.

In summary, realize that this stuff isn’t easy. Understand that this is a process. If you can put yourself in the correct mindset, and take the steps we mentioned above, hopefully you will be part of the 8% that does achieve their new year’s resolution.

 

 

 

 

Source: Investopedia

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