There’s nothing better than a fresh start. Every year, you have the chance to push the reset button and resolve to improve your health, your relationships, and yes, your financial situation. Unlike years past, you can make your commitments stick for a permanent change. The trick? Proactive personal finance planning. Do away with reactionary habits of the past. Here’s how:
Identify Reactive Habits
Before learning to be more proactive, take a quick look in the rear-view mirror to recognize your reactive habits to this point. Proactive means you’re in charge; reactive means your finances are controlling you. Ask yourself these questions to see whether any reactive habits have taken root in your routine:
- Have you received an overdraft notice any time in the last few months?
- Have you been surprised by a broken down vehicle, as opposed to being ready for it?
- Do you use credit cards regularly to pay for things you don’t want to save up for?
- Does it alarm you how little money you have left at the end of each month?
- Do you pay attention to your finances only when you have to?
None of these questions alone spell financial disaster, but if you answered “yes” to all of them, then you’re looking at a reactive approach to money.
Do a U-Turn
Now you know what reactive money management looks like. Next, it’s time to define, embrace, and execute a proactive approach instead. How? Let’s take another look at the above scenarios and see how to approach them proactively:
- Spend enough each month to cover your expenses, but not so much you’re splurging and putting yourself in the red zone. Spending more than you have in the bank needs to be a thing of the past.
- Save a little each month for surprise expenses like co-pays, home repairs, and vehicle maintenance. These hiccups are just part of life, and if you’re constantly building a cushion for each one, you’ll be taking the proactive approach.
- Get and stay out of debt. Avoid credit cards for the next year, and re-evaluate their benefit to you next January. Send this article to yourself with a reminder to re-read it in a year. Assess how it feels to be out from under the high-interest cards, and decide then whether you should re-enter the rat race.
- Create a budget that covers your monthly expenses (plus extra for inevitable future “surprises”), and stick to it. At the end of the month, enjoy the leftovers by splurging—or saving it.
- Work personal finance planning into your week. Yes, this will mean taking charge of your time. You can’t be a great money manager if you’re horrible at time management. Starting a budget and sticking to it takes time, and if you can’t make regular time in your week to administer your new plan, your ideals will dissipate once again. To get started, check out the US Geological Survey Department of Employee and Organizational Development‘s description of a popular task-sorting approach called Covey’s Time Management Grid. Getting a handle on where your hours go will be enlightening when proactively deciding where your dollars should go.
You’re already on your way to a better New Year. Congratulations on a fresh start, and here’s to new beginnings and a better you.