By Dave Ongie
Editor’s Note: This is the final installment of a three-part series on keeping your New Year’s resolutions.
When people make New Year’s resolutions each year, health and personal finances are the two most popular areas they aim to improve.
As hard as it is to hit the gym and change one’s eating habits, the discipline required to turn around one’s personal finances may be the hardest to develop because results can take so long to achieve. While a year of clean eating and intense workouts can allow you to achieve all of your fitness goals, accomplishing the goal of saving enough money for retirement takes decades.
But Peter Cholerton, a financial advisor with over 30 years of investment experience, says many of the same principles used to attain physical health apply to achieving financial health even though the road to your ultimate destination is a bit longer.
“It does seem like a very daunting task when you’re 25 years old or something and you see how much money these other people have got,” Cholerton said. “You say, ‘I’ll never have that.’ But it’s a function of investing and saving on a systematic basis and letting time do its magic.
“I think the key is just to get started and have a discipline – put so much money away every month and don’t invade that pocket of money,” he said.
Here are a few tips on how to develop the discipline and organization necessary to turn your financial dreams into reality:
1. Get on a budget and automate
It may sound simple, but the first step toward painting a better financial picture is writing out a budget and sticking to it.
In the same way that eating less calories than you use in a given day will lead to weight loss, spending less than you make will result in a surplus, which can be saved or invested.
“I would start with what is my take-home pay after tax? That is the amount of money I can spend, and I’m not going to spend more than that in a month,” Cholerton said.
Cholerton also suggests setting up automated payments on monthly bills.
“A lot of people think they’re in control because they’ve got to write the check and put it in the checkbook,” he said. “The problem is they don’t write the check. They forget. The bottom line is if it’s always done automatically, your only responsibility is making sure the money is in the account. It just makes your life simpler.”
2. Tackle your debt
It’s easy for debt to become overwhelming, but one of the first steps in achieving long-term financial goals is finding a way to get out from under it.
Instead of paying each individual creditor the minimum every month, Cholerton suggests making it a priority to consolidate debt and start knocking it out.
“Find out who’s going to lend it to you the cheapest, pay everything else off and put it in one place,” he said. “Then have the discipline to not say, ‘Now I’ve got that card all paid off, now I can start using it again.’ Pay it off, get rid of it. You’re not spending more than you earn. It’s a recipe for success that way.”
3. Start paying yourself
When your spending is under control, it allows you to start saving and investing money. While it doesn’t seem like much fun to sock money away instead of going to a movie, Cholerton said viewing saving and investing as paying yourself can lead to a change in perspective.
Even if it’s just $25 or $50 a month, Cholerton suggests putting aside money in a systematic way in order to develop a good habit that will lead to a brighter future.
“That’s why you go to work,” he said. “You don’t go to work to pay everybody else, you go to pay yourself.”