Every year in January, I always see a lot of posts on 25 or 50 or 100 ways to improve your finances in the new year. These posts are incredibly valuable and offer a ton of options to pick and choose from. However, they can be a bit overwhelming as well. Too many options can lead to what is called “Decision Paralysis.”
Decision Paralysis is when you are literally unable to make a decision because of the number of choices in front of you. That’s why it’s important to start small.
Since there are only so many goals or changes that our minds allow us to take on at once, it’s important to identify what’s going to impact your finances the most.
I believe that there are five key things you can do to influence your finances for the better and rule your finances in the new year.
1) Find Your Kryptonite
I believe that everyone should know what kryptonite is, however, I’ll briefly explain. Pardon me while I go into Nerdland here.
Kryptonite is a radioactive compound of the planet Krypton, the birthplace of Superman (AKA Kal-El). Superman obviously is close to indestructible on our planet.
However, when he comes into contact with the radiation given off from Kryptonite, he is severely weakened, sickly, and can even die from prolonged exposure.
Kryptonite is Superman’s weakness.
My apologies if that sounded like it all should be real life. 😉
So what is your Kryptonite? What is your weakness? Is there something specific that keeps in unnecessary debt or hinders your ability to hit your budgets?
My financial kryptonite that I had to overcome was no-interest financing. I once completely derailed our get out of debt train in 6 months by adding $839.00 in monthly payments. I had to get over that and learn how to pay for most things out of pocket.
That was back in 2012. Want to know a secret? I just got over it a couple of years ago.
In fact, it’s still a struggle, but I’ve been able to overcome it enough to say no to most big purchases. How did I make progress? I examine if I really need something.
My process for buying something (especially big-ticket items), is to ask myself a simple question.
“Does this purchase bring value to my life?”
If the answer is no, if the purchase doesn’t align with my values, then I don’t buy it.
To give you an example, I’ve really wanted a nice 27-inch iMac with a 5K resolution screen. Every time I go to the Apple Store I’m practically drooling so much they have to kick me out. I could easily finance it and pay it off over the course of a couple of years with 0% interest, but I don’t need it.
I have a computer that runs great right now and serves all of my needs. It wouldn’t bring any value to my life right now so I don’t purchase it.
Not spending money on an iMac frees me up from doing other things I actually value, too.
For example, I value spending time with my family, especially on a nice vacation. We’ve got a few vacations planned this year. We’d have to cut out one or two of those if I bought an iMac.
I also value eating out. The more money I’m required to put toward debt, the less money I potentially have to go out to eat.
I stay away from my financial kryptonite so I can spend money on what I value.
Once you find your Kryptonite it’ll take some work at trying to figure out how to overcome it.
For my weakness, I had to really examine if an item would bring value to my life. For you, it might be something different (unless you have the same weakness). Almost everyone’s weakness and solution will be different.
Some things you can do to control a spending weakness are giving yourself an allowance, using a cash-only budgeting system, or leaving your credit cards at home until you overcome it.
If you struggle with impulse purchases, you can use a simple method I developed (and practice!) called Impulse Saving.
Impulse Saving is when you go to the store and feel that urge to purchase something, and instead, you immediately put the amount of the item you want to purchase into savings. This will not only help you save more but over time it will quell your desire to impulsively buy things.
I want to encourage you to keep at it though! It will take some work to figure out what you need to do to overcome your kryptonite.
Once you are able to figure out what is keeping you from controlling your money, you will be able to control it much sooner. It will be more than worth it.
Think of it as finding the hole in your bucket, and then finding the right material to plug it correctly and permanently. No more leaky bucket!
2) Create Your Own Budget
Atypical Finance is all about showing you how to control your money and use it to build a life you want—the keywords being “your” and “you.” Your financial life—and your dream life—will look different than someone else’s. And their methods may not work for you.
If you’re reading this, chances are you’ve been on other finance blogs and websites. In regards to budgeting, there are a lot of articles out there that tell you the best way to budget and the best type of budget to use. Those are great, but I’ll let you in on a little secret.
A budget that someone else has developed as the best way to budget may not work for you.
For example, there is a popular method of budgeting out there that says to “give every dollar a job.” Dave Ramsey has spoken about it and created an app for it. You Need a Budget, the app I use for budgeting, created their whole budgeting method around giving every dollar a job. Many other financial gurus talk about it as well.
This method may work for some people but it does not work for me. I amended the way I use You Need a Budget in order to allow for a little wiggle room and it works great.
For whatever reason, I have to leave wiggle room in my budget. It isn’t much—usually around $30 of unassigned money works for me—but I can’t assign every dollar to a category. It just doesn’t work.
My wife and I went through several different types of budgets before settling in on what is working for us right now.
Giving every dollar a job may work for you. The only way you’ll know is if you try it. You could also create your own budgeting method from the get-go. Check out the “Take Action” section below.
Some other budgeting methods are cash-only or envelope budgeting, the Balanced Money Formula, and the Pay-Yourself-First method. I would even consider not budgeting to be a type of budgeting. Find out what works for you.
Oh. Want to know another secret about budgeting?
The current budget that you are using right now may not work for you sometime in the future.
As goals and seasons of life change, so should the tools that you use to achieve those goals. This includes your budget.
My budget looks pretty different compared to what it was even a year or so ago. The budget we were using when we paid off $26,000 in 11 months is not the same as the budget we are using now.
This is because our goals have changed. Debt is not the focus anymore. In this season of life, we are focused on doing more as a couple, as a family, and setting aside money for specific things.
Before changing up our budget, we wanted to pay off that $26,000 as quickly as possible so any money that would normally be budgeted for clothing and such was put toward our debt instead. If something came up in the categories that we are now budgeting for, we would just take care of it.
For us, we also felt comfortable making do with what we had if we could hold off in those categories. The less money we spent elsewhere, the more we had to pay off our debt.
Life and goals have changed, so our budget has changed too. This should be normal and not make you feel bad.
In order to create your own budget, you have to break free from anyone else’s mold.
The budget I created for myself and my family is a system I created called The Root Budgeting System. It’s a system—rather than a budgeting method—that truly allows you to create your own budget instead of trying to fit into the mold someone else thinks you should fit.
See, I’m pretty bullish about budgeting and believe it’s the root system of your financial tree. Budgeting, when done correctly, gives you incredible freedom in your finances.
To set up your Root Budgeting System, there are three key things you want to do after figuring out your expenses and income. You’ll want to:
- Incorporate your values. Figure out your values and inject your budget with them. Ask yourself the 4 value questions and make sure you are giving yourself permission to spend on the things you actually value.
- Set up your budget to match your pay frequency. In its simplest form, this type of budgeting tells you to pay only the bills that occur between your current paycheck and the next one. Then, you do the same for the next paycheck. So if you get paid twice a month, you’re essentially splitting your budget in half and moving around non-committed expenses (expenses without a due date) to where they make sense for you.
- Choose your budgeting principles. I can’t give every dollar a job but you might prefer it. That’s only one of several different principles that you can choose to incorporate into your budget if they make sense for you. Sign up for this free checklist and guide to help you with that.
If you’d like to have a step-by-step guide to creating your own Root Budgeting System, you can check out my book on Amazon.
My book, The Root Budgeting System, shows you how to create the perfect budget for you so you’re not trying to fit into someone else’s mold and can build the life you want.
The Root Budgeting System shows you how to do it the right way for you. Purchasing the book comes with a digital workbook to help you along as well as some sweet bonuses.
Do you want to know a major advantage of creating your own budget?
Creating a budget that reflects you and works for you will be much easier to stick with.
Imagine what it would do for your ability to build the life you want if you were able to stick with your budget long-term.
Now take action and change your financial life.
3) Pay Off Your Unnecessary Debt
Another huge way to impact your finances is by paying off your debt, especially the unnecessary kind.
I’m not the type of finance coach that says “DEBT IS BAD AND IT’S THE ENEMY!!” But I do think taking on debt can limit what you can do financially, especially if you’re not careful with it.
That’s why I recommend paying off any unnecessary debt you have.
Here are some things that unnecessary debt has the potential to do to our finances:
- It can keep you from being able to switch jobs or start a new career
- It limits the options you have to purchase a home
- Holding too much can bury you to where you cannot see a light at the end of the tunnel
- It can depress you and affect how you view money in general
- It can mask how much monthly cashflow you really have
- Pursuing higher education or traveling can be a challenge
- It has a tendency to invade your thoughts and stay on your mind
- There can be much more stress
The list doesn’t end there either. Essentially, unnecessary debt has the ability to keep you from being able to do what you want with your money. It affects your mind, your budget, and your resources.
Paying off your unnecessary debt gets rid of all of that. Talk about a weight off of your shoulders!
In order to get out of debt, you have to have a plan.
Start by setting a goal. Creating a goal will give you something to shoot for.
Make sure you’re able to attain it. Set a realistic goal but make it a lofty one.
Basically, you want it lofty enough to where even if you don’t hit it your progress is significant, but not so lofty to where you will get depressed if you don’t come close to it.
Setting your expectations from the start will also help.
I also recommend reverse engineering your goals to make your debt easier to pay off.
Second, motivate yourself to pay it off.
For that, you’ll want to focus on what your life is going to be like after you pay off your debt. It’ll also be good for you to change your stigma surrounding debt, use milestones so you have smaller victories to celebrate, and use some reminders to keep you on track.
Third, pick a method for paying off your debt. There are quite a few methods you can utilize for paying off your debt.
Some options include the Debt Snowball, Highest Interest First, and Highest Monthly Payment First. You can also create a combination of any of the methods to find something that works for you.
The important thing? Focus on one debt at a time, pay it off, and then move on to the next one.
One thing I recommend doing regardless is snowballing your payments onto each other. This is popular in the Debt Snowball Method where you add the amount of the previous payment to the next debt you’re trying to tackle.
Even if you’re using an entirely different method completely, adding the previous debt’s payment to your next debt can potentially knock months (or more!) off of the time it will take you to pay it off.
Check out my ultimate step-by-step guide to paying off debt for in-depth instructions on how to pay off your debt.
4) Track Your Spending
Another great way to make a huge impact on your finances is to track your spending.
Literally, almost every reason why someone would overdraw on their checking account boils down to not knowing how much you have in the bank compared to what you have spent.
Some people strictly use their bank account provider’s website to track their spending.
If that works for you, then keep it up.
Maybe it’s just the bank I have, but that doesn’t work for me.
Some people also use a spreadsheet to track all of their expenses. This can work well if you are well-versed in Microsoft Excel or another spreadsheet program.
I recommend using some type of application to help you with tracking the money that leaves and comes into your account. You Need A Budget (YNAB) is my application of choice.
I had to tweak it a little bit but it works great for me now.
YNAB costs less than $100 a year, but there are also some decent free options as well
Mint is run by the folks who created Quicken.
Personal Capital is a good choice especially if you’re tracking your investment portfolio.
Briefly mentioned a couple of points back, Dave Ramsey’s EveryDollar is another free option to help track your expenses. EveryDollar also has a premium version that you can upgrade too if you find the free version too limiting. It costs $99 a year.
This one is pretty self-explanatory. Actually track your spending.
I think it’s so important that I call it one of the three pillars of budgeting.
Keeping track of what you spend money on may not sound like very much fun, but it doesn’t take much time after the initial burst.
I can promise it’s very much worth it.
Using an app to help you can take the guesswork (and math!) out of it as well.
Tracking your spending will also help you with the first three points on this list!
It’ll help you find what is holding you back financially, help you create your own budget, and go a long way in tracking your debt payoff as well.
Imagine how it will feel to know exactly how much money you have to spend.
That is the sweet, sweet sound of freedom. Give it a try!
5) Automate Your Savings and Bill Pay
The last of the most impactful ways to improve your finances is based on automation. When you automate something, anything, it keeps you from having to do it repeatedly.
If you have a Netflix account, you’re no stranger to automation. Netflix is a recurring bill that happens automatically unless you cancel your account. You don’t have to do anything to pay it. It just happens every month on the same day.
Most expenses that I’ve come across have the option to automate the bill pay. Credit card payments, mortgage payments, a ton of online services, all of them have options to automatically pay the bill every month.
And if they don’t, most banks also offer this service for you as well.
You can also set up your savings like this too. It would take no effort to deposit money into a separate account through your employer’s direct deposit or through setting up automatic transfers with your bank.
This is essentially treating your savings like a bill and making sure that you get paid.
So what are the benefits of automating savings and bill pay?
For starters, it’ll save you a lot of time!
How long does it usually take you to pay a bill? Probably 5 minutes?
It doesn’t sound like much, but multiply those 5 minutes by 10 bills and you have spent 50 minutes just paying bills.
This doesn’t include any time it takes to actually track your spending. Automating your bills will save you all that time.
Secondly, have you ever forgotten to pay a bill?
I forgot to pay a credit card of ours a while back. I recorded the transaction like I had already paid it but forgot to actually go to the website and complete it. Whoops!
So what happened after we forgot?
Not only did we get charged a late payment fee, but they also cancelled our interest-free promo period on the card a couple of months later.
This forced me to amend my debt payoff plan and pay that one off first. All because I forgot and hadn’t automated the payment yet.
Guess what. Those payments are automated now.
This weekend, look into automating all of your bills. That way, when you record them, that’s literally all you have to do.
No more trying to remember if you already paid a bill or not and having to go look on their website to see if you scheduled a payment.
Automating it means it’s already done. You’ll have peace of mind knowing that you won’t have to worry about another late bill again.
Now, this will take a little bit of time to set up from the start. However, once it is done, you will be saving a ton of time and worry as well as some brain bandwidth not having to think about it.
It’ll also be important to make sure you are keeping track of your budgets and spending so you don’t overdraw on your accounts “automatically” each month.
Looking to the Future
Deciding on bettering your finances is a worthy goal. There are a lot of things that can help contribute to this.
I find the above five ways to be the most valuable to you. Even picking and doing just one will be very beneficial.
The important thing to do is to remember to take action.
Setting a goal and working out a plan is a great start, but it ultimately boils down to doing things you set out to do.
I know you can do it!