Our previous New Year’s resolutions survey uncovered a surprising fact: People were more likely to regret not doing something (like not saving enough or not paying down debts) than committing mistakes (such as making an unaffordable purchase or spending frivolously).
In other words, people regretted not being more mindful and proactive with their money. Instead of making intentional decisions based on their financial priorities, their money management was impulsive and reactive.
Sound like you? Here are some ways you can be more proactive with your money management in the new year.
1. Stop living paycheck to paycheck
Paycheck-to-paycheck living is the definition of reactive money management. Each dollar you make is spent each month, and you never have any money left over. You’re simply sprinting to keep up with the next expense, and never getting ahead.
It’s also exhausting. With so much of your money and mental energy spent on just paying your bills, you have no resources left over to better your financial situation.
Getting out of the paycheck-to-paycheck cycle will be key to creating a more proactive approach to your finances — but you won’t do it all at once.
Start with small goals, like having $10 left over each week or an extra $50 a month. Look for ways to cut your spending and grow your income. As you build a buffer between what you make and what you owe, you can afford to be proactive with your money.
2. Save an emergency fund
An emergency fund is another essential ingredient to proactive money management. Among people who fail to keep a financial resolution, 73% say they were sidetracked by an unexpected emergency expense or hardship, according to a Fidelity Investments survey.
Whether it’s a medical bill or unemployment, these unexpected situations can derail your efforts and wipe out the progress you’ve made in one fell swoop.
But just because these emergency situations are unexpected doesn’t mean you can’t plan for them. Building an emergency fund will give you the security to quickly recover from unplanned expenses or setbacks.
3. Pay attention to money patterns
If you want to know where to start being more proactive with your finances, look at the money patterns you’ve established. These are the responses or habits you default to when managing your money.
Hopefully, some of them are healthy behaviors that help your finances, but there are probably some patterns that are hurting you.
Maybe you have a habit of taking your credit card out for a spin when you’re stressed. Perhaps you’re frugal to a fault and never feel like you can enjoy your money.
Knowing what’s caused problems in the past will help you find effective solutions for your situation. If you identify your patterns, you can work to change them and create healthier habits.
4. Be mindful with your money
Mindfulness is about cultivating a practice of paying attention to your internal state in the moment, and noticing how that affects your decisions and behavior. This attentiveness to your motivations and thoughts can be a powerful tool to start making money changes.
If you’re mindful with your money, it means that you are looking inward whenever you’re handling your finances. Instead of thoughtlessly spending on a night out with friends, you might keep a tally of your spending so far and make sure it’s aligned with your budget.
If you’re feeling overwhelmed and discouraged by your debt, you might notice that and pull up your debt-tracking spreadsheet more often to remind yourself of the progress you’ve made so far.
Practice paying more attention to your thoughts and feelings around money. As you’re more mindful, you can make simple, in-the-moment course corrections that will keep you on the right track toward your financial goals.
5. Plan your financial future
As you work on your financial habits, setting financial priorities will help you make the most efficient decisions. Instead of trying to do everything at once and spreading yourself too thin, focus your efforts and make progress toward your most urgent goals.
First, identify your top financial priorities. What would your finances need to look like for you to live your ideal life? Find the financial priority that aligns best with your values, responsibilities, and other non-financial dreams and goals.
Once you have your top financial priority, you’ll have a guiding rule for your money management. Instead of just reacting to each money choice individually, you can put it in the greater context of your financial world. You can make sure that each dollar is used to most effectively make progress toward your most important money goal.
No matter where you’re starting from, you can make significant improvements to your financial situation. Learn more about managing your money with these seven ideas to clean up your finances for the coming year.
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