Start the New Year Off Right: Achieving Financial Freedom


  • January 4, 2023
  • By Valerie Keene, Expert

The new year is a perfect time to reflect on your spending and money habits. Just a few small tweaks can make the difference between an early retirement, your ability to switch careers, travel the world, or otherwise achieve the financial freedom you desire. 

Here are some actions to consider to start your new year off right:

Set Money Goals

Setting money goals can help you clarify where you’re going in the future and provide valuable direction. It can also help you focus on the big picture and overcome the temptation to spend money since there might be something more important at stake.  

Look at both the short-term goals you expect to accomplish in the next 12 months and any long-term goals you are working toward, such as saving for a house or early retirement. 

Your main priority might be to save as much money as possible. If that's the case, be sure to review your finances and determine how much you need to save over the year, quarter, month, or pay period so you have concrete numbers to reach. 

For example, if your goal is to max out your retirement plan savings, look up the maximum amount you can contribute for the year and divide that number by 12. This will help you determine what you should aim to save each month to reach that goal.

You can do the same math for other goals. Another example is if you want to save 10% of the down payment for a $200,000 house, you will need to put away $20,000 for the year. This will calculate out to $1,667 per month, or about $769 each paycheck if you have a job that pays biweekly.  

Analyze Your Spending

It’s often not the major purchases that can derail your journey toward financial freedom. Instead, it is usually the smaller, habitual transactions like that morning coffee, the twice-a-week trip to your favorite restaurant, or too many happy hour outings. 

Take some time to track your spending over the course of the month and look for patterns that you can break to free up some cash. This will also help when the time comes to create a budget.

Create a Realistic Budget

A budget is a plan for your money before you even receive it. For your budget to be effective, try to make it realistic so it can help guide your behavior without stressing you out. By first tracking your spending, you can see where your money is going and then allocate a reasonable amount of money toward each budget category you create. 

If you don’t already have a working budget, one basic plan you might use is the 50/30/20 distribution:

  • 50% on needs
  • 30% on debt
  • 20% for discretionary expenses 

In this example, once you pay off any debt, you can use that portion of your budget to save. 

This plan is just a simplified version, but you can get more aggressive with it, such as by slashing your 50% essentials to 40% and upping your debt repayment to 40%. 

Get Out of Debt

Debt can often get in the way of financial freedom. You may not feel truly financially independent as long as you’re paying high interest rates on consumer accounts.

By working with a financial professional or creating a debt repayment plan, you might be able to free up some cash and use it to pay off any larger debts you have. For instance, an individual might use the extra funds to make a bigger payment toward at least one of their debts while continuing to pay the minimum payment on the rest. 

Slash Your Bills

Now is also the perfect time to reevaluate your needs. Instead of thinking that certain expenses are fixed, look at them all as potentially negotiable. Consider the following questions:

  • Can you cut cable and use a streaming service instead?
  • Can you get rid of subscriptions you don’t use?
  • If you work, does your employer offer a free gym membership as part of your job perks you can use instead of your existing one?
  • Can you switch phone carriers?
  • Can you switch utility companies?
  • Can you lock in a better rate for car insurance?

Go through each line of your budget and get creative about how to reduce these expenses.

Increase Your Income

At the same time as slashing your expenses, look for ways to increase your income. Can you get a part-time job just until you can pay off some debt? Can you take on a contractor gig while maintaining full-time employment? Think of any extra money you earn as a way to pay off debt and build your long-term savings. 

Reevaluate Your Insurance Needs

With the new year, consider whether any changes in your family or job affect your insurance. For instance, switching jobs, divorce, marriage, having a child, or moving are some significant life changes that can alter your insurance needs.

Conclusion

To stay on track and keep your money goals in mind, it’s important to make financial planning part of your routine.

Try to spend a few hours each month tracking your spending, reviewing your budget, and considering your overall financial situation. Whether you do this by yourself, with a partner, or with a financial advisor, this exercise can help you spot any problem areas and find possible solutions for them.

By taking the time to carefully consider your financial habits and commit to some new ones, you can make the most out of the new year!

 

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