Step 1: Review and Reassess
The first, critical steps to planning and managing your finances: Review what worked well the previous year, and analyze your current financial standing.
Ask yourself: Did you meet your goals (e.g., saving more, or paying down debt)—if not, why? Also, were there any major life events (e.g., marriage, divorce, or birth of a child) that required you to rejigger your financial plans?
“Unfortunately, no matter how hard you try, life happens,” notes Financial Planner Minna Ennin Black. Research shows: We think we’re better at managing money than we really are, so we’re sometimes overambitious. If that was the case, Black suggests, in the present year, “you shorten or limit your goals to something more attainable.” Also, “go back and reassess your habits.” Monthly reviews can also help keep your goals on target.
Financial Behaviorist Jacquette Timmons also suggests creating a mini financial plan for each of your goals for the year—and any resolutions you made at the start of the New Year. She emphasizes, “The main thing is to recognize that every goal you have has a financial component to it. You can’t put together a mini plan for something unless you know [or estimate] what that financial obligation or number is going to be.”
Timmons observes: “A lot of people don’t recognize that the money they need to finance the goals they have…comes from the resources they have right now.” Knowing the price tag accompanying each goal, she says, helps you to make smarter choices about what you may need to do to adjust your spending, expenses, or earnings, “in order to create the future that you want.”
Step 2: Create a One-Page Financial Plan
After you review and reassess, Black suggests that you map out your three-, five- and ten-year goals—be as specific as possible. For example: Paying down debt? Include both the amount you’re paying off and where the funds will come from to reach this goal. Next: Focus on four financial areas that you would like to improve.
For additional accountability, she suggests getting a Money Buddy—someone with similar financial goals; a friend; or trusted confidante: check in every two to three weeks. Intriguingly, she also suggests using productivity—rather than personal-finance—apps as accountability tools. Two suggestions: “Any.do” and “Remember the Milk.” Do daily alerts to, for instance, watch your spending habits, or quarterly or monthly ones, she says, “so you get a reminder as to what the goals are, and why they’re important to you.” Those reminders can go a long way in reinforcing positive behavioral changes. A financial planner or advisor can also “come up with a strategy to make the process easier.”
Step 3: Plan the Work—and Work the Plan
Black advises: Prioritize four key areas of your financial plan, and every quarter select one of those areas to focus on, and make significant progress. She also notes: Don’t wait for upcoming life events to happen. Expecting? Enroll in a 529 plan. Getting married? Set aside money now for both big-ticket and miscellaneous expenses.