Ask the Expert: How to Reach Your Financial Resolutions

Our latest Ask the Expert blog installment comes from Sumeit Aggarwal, a financial literacy coach. 

As the calendar turns to 2018, many of us are making (and hopefully keeping) our new year’s resolutions. According to this Patch.com survey, eating better and exercising more top the list of most popular resolutions, with spending less money coming in third place. The first two are related to weight loss and the next one relates to financial goals. While these goals may seem different at the first glance, they are not very different in terms of what we need to do to succeed in them.

Let's first look at the health goals. Experts say that one of the most effective ways to lose weight is to create a calorie deficit. A calorie deficit is a state in which we burn more calories than we consume. According to some estimates, an average woman needs to eat about 2,000 calories each day to maintain her weight, and 1,500 calories to lose one pound of weight per week. An average man needs 2,500 calories to maintain his weight, and 2,000 to lose one pound of weight per week. These numbers depend on numerous factors; however, on average both men and women need to create a calorie deficit of about 3,500 calories per week to lose weight. One can create a calorie deficit by either eating less calories, burning more calories by exercising, or a combination of the two.

The recipe for achieving our financial goals is not that different. You can create wealth by increasing income or reducing expenses. Everyone’s financial situation is different, but often a combination of increased income and reduced expenses is what’s needed to get our finances under control.

So here are three simple tips to stay on track with your financial goals this year:

1. Make a budget

The old saying goes: “What gets measured gets done.” Cliché, maybe, but it’s effective! So, my first tip would be to make a budget. It doesn’t have to be a line-by-line list of everything you will spend on—start with setting a limit for the major categories of your spending. If this is your first budget, then let’s start with the top 10 categories. This will give you an idea of where to cut back and perhaps where you might be able to spend more in some areas where you didn’t think it was possible.

2. Plan cuts by expense category

An effective way to spend less is to get a handle on what you have already spent in the first place. Most of us live a fairly predictable life, so start with last year’s spending numbers as your guide. Look at your credit card and bank statements or use an online tool like Mint.com, Quicken.com, etc. Note that online tools would generally require you to link your bank accounts and credit cards to their app. In case you are concerned about your data security, a spreadsheet would work just as well with some discipline and effort. Contact me and I will be happy to share a sample spreadsheet. Now, set targets to reduce spending in areas where it seems manageable. Your mortgage payment may not go down at all, but you might be able to cut down on eating out by a healthy percentage, for example. 

3. Separate your needs from wants

There is nothing more damaging to our financial health than falling in the trap of believing “everything is a need.” One rule that many have found useful is to wait 72 hours before making large purchases and asking yourself if you still “need” that item after 72 hours. Often, this helps prevent impulse buys, and the savings could later be used for something much more useful and enjoyable.

Our lives are a collection of small moments, that are often enjoyable in and of themselves but challenging to see collectively as part of the bigger picture. That’s what I love about New Year’s Resolutions—it’s a great way to take that holistic view of our goals and make a plan on how to achieve them. As Dr. Martin Luther King once said,

“Faith is taking the first step even when you don't see the whole staircase.”

So, let’s take the first step and make this the year we stick to our resolutions and end the year healthier and more financially secure than we started it.

If you have questions that go beyond what I covered in this blog, I’d love to help you out! Get in touch on my Pepperlane profile for a list of upcoming classes or coaching opportunities, and join my mailing list to receive personal finance tips in your inbox; I offer a mix of financial coaching and education sessions.

Sumeit Aggarwal - photo.jpg

Sumeit Aggarwal is a financial literacy coach and advocate. Sumeit believes financial capability is a lifelong endeavor and a critical skill for personal success that requires mastery of financial education, behavior, and incentives.