I’ll admit, I’m kind of “over” new years resolutions. Big lifestyle changes tend to come at “tipping point” moments for people, something I’ve definitely experienced before, where you’re just DONE with your own bullshit and need to make a big change like, yesterday. The calendar rolling over to a new year is more of an outside, societal pressure to make a change, and while it might encourage you for a bit, it’s hard to keep that motivation going beyond January if you’re not really feeling it deep within yourself. But maybe you’ve already hit your tipping point and are working away at a goal, and this January you’re reflecting on where you’re at and where you hope to be in a year, and that’s cool. My primary resolution this year, which is actually a project I began in earnest months ago, is to get my apartment neat and organized and attractive enough to entertain guests. It’s a big one that requires major lifestyle adjustment and habit changes, so I’m trying not to add on to many other big goals (although my 2014 resolution, “keep the new baby alive”, will be making a comeback when our new baby arrives in June). I have been flirting with the idea of focusing on one of the financial resolutions below, however, because god knows my bank account would appreciate it. Maybe in a few months if I’m feeling up to another challenge.
How about you? Got any new years resolutions? Would you try any of the ones below?
- Pay off credit card debt
Here’s a big, scary one right off the bat. My co-blogger here Jill probably has a lot to say on the subject, as she’s currently in the midst of (quite successfully!) slaying her debt demon after a run of rough luck. Personally I did this last year, but not in a particularly heroic fashion: we got a new mortgage and borrowed some extra money for home renovations, then paid off credit cards with part of those funds to avoid paying the ludicrous interest rates on our cards while figuring out how to spend the money. However you do it, if you’re a young(ish) adult like me and all your credit cards are at 20%+, you’re going to want to get that off the books ASAP or it’s going to be a huge drain on your finances forever.
When choosing whether to pay off debts or put money into an emergency fund, consider your options carefully. Major points to consider:
- What is the interest rate of your debt? It’s not uncommon to finance a large purchase, like furniture, on a store credit card with a temporary 0% interest rate and no need to make payments. If you’ve got, for instance, 12 months to pay off a $2000 balance from a single purchase before they start charging interest, it may be safest to sock away enough money to pay that when it does start collecting interest; that way if some emergency comes up in that time period and you need to spend that money, worst case scenario you just start making payments on the debt when you have to. It’s pretty unlikely you’ll be able to pay for an emergency car repair with an IKEA credit card, so some savings on hand might be more useful than a clear debt sheet here. Similarly, if you have a car loan at something like 0.9%, it’s probably not worth paying off early at all; just keep making your scheduled payments and budget accordingly.
- How easily could I lose access to my credit? One of the reasons I pay off my cards with some frequency, even if I don’t have a ton of disposable income, is the simple fact that I know I can just start charging to my credit cards again if I do happen to run out of money. As scary as it can be, sit down and try to map out a worst case scenario. If you lost your job, or if the value on your home tanked and you lost all your equity, or if you missed several payments on your credit card or mortgage…would you have access to credit to help you? Or would you lose access to it and be in even worse shape with no savings? If times are uncertain, you may have to focus on finding a balance between debt repayment and saving.
I’ve been Spending Fast-curious for a while, but have never had the guts to pull the trigger. The basic concept is a total spending freeze: no non-essential purchases, period. “Essential” purchases are left somewhat up to your own discretion, but as an example, here’s the list of what Anna of And Then We Saved (creator of the Spending Fast) considered essential for herself:
Utilities (keeping lights and water off as much as possible; keeping the thermostat at 68 and wearing a hat and long johns inside, if needed)
Cell phone (taking the internet off of it)
Food (store-bought, off brands, in season fruits and veggies and only when I run out of stuff in cupboards)
Gym membership (local gym, it’s reasonable and health is important)
Photography exhibits (done inexpensively)
Box hair dye (hey, I have needs)”
Obviously this will vary by individual: for instance, if I did this I would not need to be paying for any photography exhibits or hair dye, but I’ll be damned if I’m giving up salon haircuts (YOU try dealing with my obscenely thick, bizarrely-textured and cow-licked hair) and I’d have to add in a budget for clothes for the kids who outgrow everything constantly (I could stick to thrift stores though, I suppose). Taking internet off my cell phone makes my heart hurt but is probably a good idea.
This all seems very terrifying until you read Anna’s website. She paid off $24k in debt in 15 months! What! OK, maybe I’m sold…for later…maybe. I pretend my husband wouldn’t be on board so I can’t do it, but I know deep inside that I spend way more than he does and he would probably just be relieved if I announced that I was going to stop. I will definitely follow up if I ever get the guts to try this.
Further reading: Anna’s inspiring website, And Then We Saved
This is a pretty simple concept to ease yourself into the habit of socking away money for savings if you don’t have a ton of extra income to throw at it. The plan is: starting with $1 for week 1 of the year, put away one more dollar every week of the year. So week 1 you’ll put in $1, week 2 you’ll put in $2, and by the last week of the year you’ll put in $52. I like that this builds up gradually: the first few months the amount is so small you won’t even notice it; you’ll basically just be tossing a bit of spare change into a jar. But by the end of the year, you’re having to plan for it more and accustom yourself to putting in a larger amount of money.
This plan will result in $1378 in savings over the course of the year. That’s not a huge amount, but it’s a hell of a lot better than zero, so if you’re not saving at all, maybe give this a try. Doing it in a jar (as I usually see this challenge presented) sounds fun, but you could also do it electronically by simply moving funds electronically from your chequing to savings account, as long as your bank doesn’t charge you for transfers like that. This would give you the added benefit of at least accruing a tiny amount of savings account interest on your savings over the course of the year. At the very least, once the year is over, dump the total into a savings account rather than just starting to spend it.