Research shows that about half of all adults in the United States make New Year’s resolutions. Some of the most common include weight loss, smoking cessation, increased exercise and debt reduction. The practice of making resolutions dates back to the Babylonians, who believed that what a person does on the first day of the new year affects what they do throughout the coming year. Statistics and resolutions, however, will not make you wealthy or successful. To improve your family’s financial health, start the new year with a different perspective on money management practices that will help you reach your financial goals.
- Have a spending plan. Whether you call it a budget or something else, establishing a plan for spending your income helps determine what is important to you and your family and helps you manage your monthly spending. Most financial experts agree that a budget or spending plan is the most important factor in achieving financial success and meeting financial goals. You may find it easier to develop a family budget if you involve the entire family, so be sure to discuss your spending plans together.
- Track spending. Ask all family members to write down every penny spent for at least two weeks. (A full month is better, but challenging.) By doing so, you have a much better idea where your money is going each month. It may be surprising to learn that your spending patterns don’t match your spending plan, which can quickly derail your financial goals
- Avoid places that trigger overspending. Overspending and recreational shopping are two of the biggest problems for most families. Whether it’s a trip to the mall because you’re bored or stopping at the movie concession stand, beware of any place that trips your spending switch.
- Write down what you want to buy and why you want to want to buy it. If you still want it 24-48 hours later and you have identified a purpose for your purchase, then it’s probably okay to go ahead with your choice. You may even want to initiate a family conference time to discuss purchases over a specific amount. This idea works really well with children, too.
- Pay yourself. Every family needs a savings account (for emergencies) and some type of retirement account. Once those are established, consider special savings accounts for other family goals, such as vacations or holiday purchases. Paying yourself allows you to meet both short-term and long-term goals and provides a cushion for those unexpected expenses like new tires for your car or new glasses for the kids.
- Use credit cards only when necessary. It can be so easy to use your credit card for fast, cheap purchases, such as fast food; however, those cheap trips can add up quickly to form a big expense. Credit cards should be used for emergencies or major purchases that cost more than you have saved. A good rule of thumb is asking if the product you purchase will last longer than it takes you to pay it off. Unless you already have a pattern of paying credit card bills in full each month, consider leaving them locked up safely at home or tucked in the back of your billfold so they are available only when needed.
- Use student loans or savings to pay for college expenses, not credit cards. Financing a college education for you or your children on credit cards is the most expensive payment method. Student loans have much lower interest rates and most do not require repayment until graduation. Also, avoid using retirement funds to pay for education. You can always borrow money to finance education; you cannot borrow money to finance retirement.
- Resist peer pressure to spend. Friends and family members often have hundreds of ideas for spending your money. Just because they have a new car or a new coat does not mean you must have one too. Avoid shopping with people who encourage you to buy things you don't really need. Resist the temptation by asking if that purchase will help you achieve your family’s financial goals.
- Don’t get discouraged when you make a mistake. No one is perfect and no one makes the right choice every time. You will make mistakes, so don’t spend a lot of time worrying about it. Instead, focus on how to fix the problem and get back on your spending plan as soon as possible. In extreme cases, you may want to find a financial advisor or debt counselor for help.
- Live smart. Being informed is the key to making good choices. If something sounds too good to be true, then it probably is. Or, if something doesn’t make sense, follow your instincts. Researching your purchases or delaying a decision until you have more information will generally pay off.
Sue Lynn Sasser, PhD, is an associate professor of economics at the University of Central Oklahoma.