New Year Resolution: working on your finances

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“New year, new me” – all of us on January 1^st every year. For the longest time, my New Year resolution was to lose weight and get back in shape. Let’s say it didn’t work for 2020; the pandemic got me closer to my pantry and I can’t fit in my jeans anymore. However, this year, my resolution is to get out of debt. I told you I was already working on it but I actually called my finance counselor and she created a specific and customized plan just for me. If your resolution for 2021 is to improve your finances, here are a few tips to get started.

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Track your spending

Do you look at your bank account and think “where in the world is my money”? It used to happen to me ALL THE TIME. A coffee here, a lunch there, Amazon purchases all over the place. The small purchases here and there are what’s draining your bank account.

Open your banking app and write down every single expense for the last 2 months. It’s going to take a while but you will see your spending habits and where you can cut down.

Example

Are you ordering on Uber Eats 3 times a week?

Let’s say you order something for $15.

• Plus taxes (let’s round it up to $3)
• Delivery fees: $3.99
• Tip: $3.50
• Total: $25.49

Do this 3 times a week; you have spent $76.47 in a single week, or $305.88 for a month.

When I don’t have my kids, I get very lazy when it comes to cooking for myself. I used to order from delivery apps a lot. My credit card can tell you it didn’t end well.

Get yourself a nice notebook and a good pen, and at the end of the day, write down every single expense you made, whether it was to pay a bill or to grab a coffee on the go. You will become more aware of how much money is left in your account and it will help you reconsider your purchases.

Yes, I track my expenses!

To prove to you that it is doable, here’s a picture of my expenses for December. Keep in mind that I wrote in French because, you know, it’s my first language. You can definitely make yours prettier, with different color codes and stuff, but it’s my first month tracking every single expense on paper (doing it in an app didn’t work for me).

Track your debts

How much debt do you have? Do you have loans? Multiple credit cards? A line of credit?

Write down every single debt that you have so you can track your payments and see your progress. Every time you make a purchase or a payment, adjust your balance.

Grab your FREE debt countdown spreadsheet

If you don’t know how to get started, I created a Debt Countdown spreadsheet just for you. See below! I made this for myself a few months ago but I decided to share it with you.

Reconsider your financial institution terms

Is your bank charging you fees for your checking and savings accounts? Well, most financial institutions do. I have a monthly fee of $15/month for my checking account, and $5 per savings accounts (I have 3).

That’s $30/month of MY money that goes to the bank or $360/year. It might not seem that bad but this is money that I could have saved for my retirement (over the span of 25 years, that’s $9,000 that could have been added to my retirement fund).

Some newer banks, like Tangerine in Canada, don’t charge you any monthly fees and allow you to make as many e-transfers as you want, without charging you every time.

A few friends of mine switched to Tangerine years ago and have been trying to make me switch too, but I wasn’t convinced as they don’t have any physical banks. I made the switch recently and I am actually considering closing my bank account at the financial institution I’ve been with for years, just to save on these monthly fees.

You can also try calling your bank to see if they can offer you a better account to meet your needs, while paying less fees. I mean, if it worked with my phone bill, I don’t see why you couldn’t negotiate better terms for your bank accounts!

Make a budget… and make sure to include your “treat yourself” money

Budgeting is boring, I know. I preferred my cloud of bliss when I would just spend money and not think about the consequences. This is exactly how you get the “where did my money go?”. Creating a budget doesn’t mean you can’t spend money on take-out or a coffee at Starbucks; you simply need to consider it in your budget.

Your budget should include the following elements:

• Income (work salary, side hustles)
• Housing expenses (rent, home insurance, etc.)
• Utilities (power, phone, cable, Internet, TV subscription services, music subscription services, etc.)
• Transportation (gas, car loan, car insurance, license plate, maintenance, driver’s license, bus passes, etc.)
• Food (groceries, take-out)
• Recreational (kids sports, activities for you, etc.)
• Health (medication, therapy, life insurance, etc.)
• Kids (clothing, etc.)
• Pets (food, trips to the vet, etc.)
• Debts (credit cards, lines of credit, student loan, etc.)
• Savings (retirement fund, kids’ college funds, dream projects like buying a house, etc.)
• Personal (clothing, gifts, etc.)
• Entertainment (movie theater, concerts, etc., if they are ever going to be allowed again!)

There may be other categories for your specific needs, but this should give you a global idea of how to allocate your money.

Here’s an example from my own budget

I told my finance counselor that I felt like stuff came up every time I was planning to put more money on my credit card.

For instance, over the span of 2 weeks, I took my car to the garage twice: once was the regular oil change/winter tires installation, and the other one was because the heater in my car stopped broke (it’s winter in Canada right now, it’s safe to say the heater is a necessity!). So, for those 2 weeks, I spent close to $500 at the garage.

My finance counselor told me to sum up the maintenance expenses for my car, on a yearly basis. I calculated about $1,150 per year. She told me to save about $95 per month (or about $48 per biweekly pay) to have money saved for unexpected and expected car situations.

This brings me to my next point.

Create an emergency fund

Depending on the experts, you should save anywhere between 3 and 6 months of your monthly expenses for your emergency fund. We never know what life has in store for us, just like the COVID-19 pandemic. Saving for rainy days is essential to protect yourself in case of unexpected situations.

You don’t have to put thousands of dollars each month to build it up; even small amounts will make the difference if you choose an account with higher interest rates than what regular banks offer.

According to Investopedia, a high-yield savings account could be a good option, which will give you more earnings than most regular savings accounts.

I can’t pretend to know everything about finances and I am bad at math, so here’s how Investopedia explains it:

“Given the difference between high-yield savings account rates and the national average, the increase in earnings is significant. If you’re holding $5,000 in savings, for instance, and the national average is 0.10 percent APY, you would return just $5 over the course of a year. If you instead put that same $5,000 in an account earning 2 percent, you’d earn $100.” (from “What is a high-yield savings account” on Investopedia)

Invest

If you are debt-free, you might want to consider investing. I can’t remember the exact saying but it’s something like “you need money to make money”. I am not there yet but if you are, I strongly recommend you read Broke Millennial Takes on Investing by Erin Lowry to get started.  

There are many other things you can do to improve your finances in the new year, whether you work on paying off your debts or starting to invest. The most important thing is to plan your finances properly.

If you want more quick tips to work on your finances, make sure to read my post Quick Tips to fix your finances. I also wrote another post about great books on personal finances that are NOT boring if you would like to read more. Would you like to get a budget spreadsheet FOR FREE? Grab it below!