It's January. It's time for resolutions made and, often, resolutions broken. Is one of your resolutions to better manage your money?
Too often keeping to a budget is like dieting—you start with good intentions but after awhile your enthusiasm disappears and you return to your old habits. So how do you create great money management habits?
Be honest with yourself about your current situation
The best way to start is to determine exactly what you earn, what you owe and what you spend. Write it down. Then create a budget. The Home Budget Planner can help.
Set very specific goals
You need to have a goal to work toward, and goals must be measurable. Don't simply declare you're going to spend less. Decide how much less, and put a timeline on your goal. For example, you might decide to reduce your spending by $50 every week. Or perhaps you will put $200 per month into a savings account.
Then decide on very specific tactics to reach your goal. If your goal is to reduce spending by $50 per week, perhaps you can save half of that by skipping your morning latte and making coffee at home. The other half might come from bringing your lunch to work instead of eating out. Whatever you decide to do, make sure you have a plan.
Set small goals to help you reach the large goal
Sometimes the large goal can be overwhelming. It helps to have a series of small goals that will ultimately lead to achieving the large goal. Debt repayment is a good example. If your goal is to be debt free in two years, you may lose focus long before the two years is up. Instead choose one credit card (preferably the one with the highest interest rate) and set a date for repaying that debt in full. Once you've achieved that mini-goal, set another.
Reward yourself for meeting goals
Sometimes, the more you deny yourself the more you're tempted to cheat. So allow yourself to indulge at pre-determined intervals. For example, you may decide to bring your lunch to work each day to save money. As a reward for meeting your goal, you may want to schedule a lunch with friends on the last Friday of the month. It gives you something to look forward to.
Track your progress
People who write down what they spend—to the penny—tend to manage their money better. Keep a record of every bill you pay and purchase that you make. If you withdraw cash from the ATM don't simply write "cash withdrawal" on your record. Write the amount of every purchase you make with that cash.
Don't carry your debit and credit cards with you. Give yourself a cash allowance each week and use that to make all of your purchases. It's very difficult to make an impulse purchase when you can't charge it and you don't have the money with you.
If you stumble, don't give up.
Change can be hard. If you overspend one week, don't be too hard on yourself. Try to figure out why you overspent and take measures to prevent the temptation in the future.
Share your goals with friends or family
Let's be honest. It's easier to give up on a goal if nobody knows about it. You'll have more success if you're accountable to someone.
Remember that resolving to better manage your money doesn't have to happen in January. It's a good idea all year.