4 Money Resolutions To Build Wealth and Spend Less

By the time New Year’s comes around, it’s fair to say that many of the plans have evolved into an adaptable mash-up of what we can and whatever happens will happen.

Honestly, it’s easier said than done’ yet many of us look forward to the hope of what a new year brings. 

Take this example: Before the 2020 lockdown, I participated in a money resolution challenge where each participant was to put away Ksh100 per week.

At first, it felt like a chore and difficult to stick to, mostly because I naively thought Ksh100 was very doable - but I quickly realised that lots of my daily expenses such as bread, groceries, totaled to Ksh50 - Ksh100.   

Good news is, I got better at determining what my financial wants and needs are, which added up to a nice sum which was a bonus for my budget. 

‍

Then the lockdown… 

When the curfews and lockdown measures started – my budget got tight, very tight. Anyway, you can guess how that went for the next few months (maybe, that’s why the hope of a New Year start is appealing)

That’s all in the past now, so as 2022 gets closer, why not shake things up?

Create resolutions that match your strengths, nurture goals and improve on your weaknesses.

By ‘‘shake things up’’, I mean setting personal finance resolutions that you can stick to all year round (no Valentine’s Day, Easter etc. excuses).

What You Should Know Before Setting Your Money Resolutions

If following the ‘‘New Year’s resolutions trend’’ sounds more like a cliche than a sensible decision you are dead-on, when you consider how often New Year resolutions fail.

Before you start, remember these two main challenges that cause one to overreach, leading to many failed goals and plans. 

• Challenge 1 - Being Overly Aggressive / Forceful

This leads to discouragement due to the goal-setter’s overemphasis on the resources and know-how’ to attain specific goal requirements

•  Challenge 2 - Being Unrealistic

Thinking outside the box is a good idea, only if it is workable for you

Minimise the effects of external influences such that the final goals you set out to achieve are practical, come with some passion from you and will not be a chore. 

Four Financial Resolutions To Set For 2022

Now that we’ve addressed the challenges, let’s look at four financial resolutions that offer practical personal finance solutions.

1. Financial Self-Audit

Often the hardest part is starting and that’s why you need to understand your current financial position before making any changes. 

That means, taking a close look at your current financial situation and identifying what needs to change, what stays the same and what to omit – in three easy steps:-

Step 1: Know Your Debts. Clear Your Debts

We’re excited to wave 2021 goodbye but debt doesn’t go away as easily, does it?

• If you’re debt-free, stick to your budget, stay disciplined and remain debt-free even as the New Year starts
• If you have debts, you can still have a cheerful holiday break. 

Clear your debts (if possible) and/or if you have a practical debt payment plan, stick to it

For example, for credit card debt and other loans, pay the minimum payment by the due date. This way, you keep your debt balance(s) low; which earns you a good credit history that also keeps you in good standing with creditors.

Step 2: Calculate Your Net Worth. Take A Look At Your Income, Expenditure And Savings

Ever heard the saying, ‘‘If you want to know the end, look at the beginning”?

This is the focus of step.2, with emphasis on the importance of reviewing your 2021 financial budget(s), goals, debts, savings, and investments (etc.), to get you started on the right path.

• Money-wise, this means identifying which goals were successful and which were unsuccessful; some you can take up again, change and some you can toss out

Step 3: Make Or Update Your Budget

It’s always good to have a plan and at least one back-up plan (for those unexpected moments).

Even when you have a budget, life happens - so it is important to review and update accordingly to know where you stand financially.

Ideally, for well-timed updates review your budget at least every week or daily (if you can).

With a reliable budget, you can answer personal finance questions in real-time (e.g.):-

● Do I spend too much on take-out meals?

● Can I afford to move out next month?

● Do I need more income generating sources? 

● How much debt do I have left to payback and when do I have to pay them?

● How well am I doing with my savings goals? (etc.)

2. Set Up A Working Budget And Stick To It

If you don’t have a budget, you need one and should have one, to understand exactly where your money is spent and saved.

By getting started on creating a specific yet practical budget - you set guidelines for what you can afford to spend and it helps you identify areas where you could cut back.

Here’s how:- 

• Install Free Budgeting PC Software and Mobile APPs
  

You’ll have your pick from the free google play store or apple store certified budgeting APPs, which are quite easy to use. 

The budget templates are ready-to-use and all you have to do is fill-in the specific details of your budget items.

Now, you can literally start, control and monitor your budget from anywhere and at anytime.

• Review Your Cost Of Living
  

The main goal of this review is to understand your expenses, so you can prioritise accordingly. For example, irregular expenses are optional expenses you can choose to cut-down on to save more.

Start with all your monthly fixed expenses, such as car loan expenses, car insurance  (if monthly), tenant / house insurance (if monthly), utility bills, housing payments (i.e.) mortgage and rent.

Next, consider and review saving expenses, and the irregular expenses (e.g.) subscriptions, daycare, clothing, charity fund, retirement fund, personal care items, entertainment, transport, entertainment / leisure (etc.)

3. Setup Or Review Your Emergency Fund

No one looks forward to disruptive situations that dig into your time, money and energy, but life is unpredictable - so we do the best we can to be prepared.

Since the lockdown the need for emergency funds is undeniable, however, this is probably the toughest resolution because of the unpredictable nature of the scenarios that apply for this fund.

So, if you have an emergency fund, review it again. If you don’t have one, it is time to set one up. 

…Not convinced? Well, you should know that an emergency fund is a smart way to decrease the chances of “emergency borrowing”, which incurs debt or incurs more debt.

Here’s How To Setup Your Financial Safety Net:-

• To start, set an amount for your emergency fund after setting your monthly expense budget (check out resolution 2). The expert recommended budget duration to consider is at least 3-6 months’ worth of expenses, for a reliable safety net estimate
  

• To save, consider saving (or) setting up your emergency fund in an interest earning account to steadily grow your emergency fund as you continue to save

4. Automate Your Savings

The best thing about saving money is you can never save too much.

Thanks to hi-tech advancements - being too busy, having less money or not being the best at prioritising aren’t acceptable excuses.

You can automate your savings on your mobile money account and/or bank account, which will deposit a set amount and watch your savings amount increase without any hassle.

Other non-digital options to improve your savings habits are:-

• Separate Your Charity / Donations From Your Savings

These are two different financial goals and it’s important to know the difference, so you can intentionally set realistic amounts for each.

Choose and setup a high earning savings account separate from your regular transaction account. In case of any extra cash from tax refunds, prizes, bonuses etc. it’s considered additional income you can deduct from and save

• Identify Your Needs And Wants

Often spending is set to – because you can and because you have to. 

To be sure of ‘‘why you’re spending any amount’’, it's key to identify what is a want (i.e. what you can do without) and what is a need (i.e. what you must have or spend on). 

For example, ask yourself - Do you need to eat out every day? 

Do you need new shoes? Is it cheaper to bring your own lunch to work? 

Do you need to go clubbing every week? (etc.)

• Consider Investments

Banks are a legitimate, timely source of financial information, so consult your bank for information and register for the best-suited investment products. This also includes long-term saving options (e.g.) bonds, retirement funds, stocks, housing / own-a-home savings fund (etc.)

• Browse Before Shopping  

Bargain hunting is enjoyable when you have a goal in mind (its like treasure hunting and you get to choose what the treasure is). 

This does mean, avoiding window-shopping as a ‘‘leisure activity’’ and selecting less impulse spending activities like sport activities, nature trail trips or movie nights at home (simply remember to choose what is safe, free-or-cheap’ and enjoyable).

• Be Patient With Yourself

The thing about taking responsibility is that it takes quite a toll on the one(s) taking on the responsibility; just remember change takes time, so allow yourself to start small.

Here are some pro-saving habits:- 

• Reduce your spending by cutting back on some luxuries (e.g.) review your subscriptions and prioritise - what is a want and what is a need
• Plan for larger purchases like (unforeseen home repair costs, car repairs, health costs, appliance upgrades etc.) 
  

-------

Over time, these small changes have bigger, positive sustainable benefits and the satisfaction of successfully achieving short term and long-term goals is a priceless motivator.

It is never too late to get back on track but avoiding the problems that come with bad financial choices is always better, wouldn’t you agree?