It has arrived…2020. Wow, it almost seems it should be followed with the words “A Space Odyssey” to someone like me. After all, it’s been over 50 years since that great sci-fi movie “2001” hit the screen and now we are living in 2020. You can imagine that feeling by thinking how 2070 might be now if you had to guess what life would be like then? A bit scary, isn’t it?
But having said all that, there is the real fact that we have to deal with 2020 right now using pretty clear vision, a la “20/20 eyesight”. The reason is obvious: if we don’t, we will be working with a handicap. And here’s the problem, without a 20/20 view to guide your finances, you are bound to fall short of your goals and there just aren’t any type of corrective lenses that will make your financial vision clear.
Think of Your Goals for the New Year 2020
When you think ahead 12 months to the end of 2020, what would make you feel better and more comfortable? Would it be cutting way down or even eliminating your credit card debt? Would it be boosting your savings another $5,000-$10,000 or even just having any savings put away at all?
What if you could save enough to make that big home improvement you really need for your house or to take that dream vacation you have always wanted to take? Or, what if you could actually be just putting some bucks away to build your emergency fund that you know you need to have? It might be really making some progress towards your retirement plan. But whatever your goal or goals, right now is the time to think about what you want to celebrate at the end of 2020, and then begin the steps to actually get you there. That’s the kind of financial vision and positive goal setting that you can start right now in 2020.
How to Achieve Your Financial Vision
Step 1 – What was your 2019 income and expenses?
If figuring out your 2019 results before you plan 2020 sounds totally fundamental, that’s because it is. But, despite the fact that you should already know where to begin to get those numbers, most people never actually do it or never even have the data to do it right!
First, review all of the spending you did over the past year of 2019 and be totally honest about the numbers when you do. This isn’t fiction or a wish list you are dealing with, it’s real stuff and means everything when it comes to making any or all of your goals on 2020.
It isn’t going to be a fun job. In fact, it can be pretty tedious work. Carve out adequate time now and focus.
In the past, I have recommended using some form of spending and income tracking system so that making your yearly essential budget will make sense and actually be based on your real numbers. If you did that, congratulations!
If you used online banking or Quicken (which I personally use) or an app like You Need a Budget or Mint last year, then you already have access to numbers and graphs that show how much of your income went to specific spending categories, like food, clothing, entertainment, and household expenses, etc. However, you can still do this without those kinds of digital tools. It just takes more time and elbow grease to help you get started with your expense and income tracking.
Why is this tracking so important? Because you have to know how you’ve earned and actually spent your past money in order to evaluate and plan how you want and will spend your future money!
You might think you haven’t got a single penny to spare and that’s why tumbleweeds are rolling through your savings account, but by tracking your expenses you can reveal a totally different reality. You will find all the places where you have spent money that you didn’t need to spend or think of how you might have saved money by spending it “differently” or at a different time. When you’re having trouble achieving your financial goals and can’t figure out why, knowing exactly where your money goes is the first step to bringing your actions in line with your goals.
Step 2 – Actually creating a budget!
With all of your raw data in hand, create a list of all of the categories you have for both income and expenses and make a 12 month budget based on a monthly projection. The simple way is to divide your total annual expenses by 12 since most of your expenses occur every month.
Some are easy to predict like your mortgage payment or monthly rent because it’s generally a constant. Others are tricky, i.e. what you might spend on gasoline in any given month will vary, or your gifts spending may skyrocket in December. I still divide my annual totals by 12 and get an average monthly expense when I plan. It’s a number based on the reality of last year so I say it’s acceptable. It’s not a big deal if in November you under estimated actual expenses and in December you overestimated as long as the average totals meet your goal.
Do the same for your income planning. Take into account every line item. Besides your planned monthly average salary, if you know that every October you get a property tax rebate from your state, include it as income for October.
Once you have done your projections based on last year and what you know will happen this year, you have a budget.
Keep in mind that money management is not one-size-fits-all. There’s a multitude of budgeting methods out there. You also have total freedom to break the mold and create your own budgeting style.
Don’t Be Intimidated by Making a Budget
If you’re discouraged by the idea of budgeting before you even start or if you’ve tried and given up a few times already, try flipping your thinking a bit. Consider what your budget can do for you rather than how it restricts you. Here are just a few ways your budget can be beneficial to you and your financial vision:
- A budget will highlight quickly where you’re overspending money
- A budget helps you to break away from living paycheck-to-paycheck
- A budget will help you from missing upcoming bill payments
- A budget helps you to plan your saving for the future
- A budget helps you allocate money to what’s most important to you
The beginning of every year is a clean slate and a fresh start, so try to think about it in just that way no matter what your financial past has been like. You can begin right now to improve your finances and the first step is to understand where you have been and what you need to do to change your results.
In a past post, I wrote about the goal making process and used the example of SMART as the method of goal-setting. It stands for Specific, Measurable, Attainable, Realistic, and Timely. By thinking through your financial goals in this way, you’ll have more clarity about what you’re actually trying to do, and that will give you a better sense of how to allocate your resources and energy for a clearer 20/20 financial vision in the year to come.
Are you set on a budget for 2020? It’s time to do it if you haven’t already and it’s the tried and proven way to gain control of your finances. What are your financial goals for this year? Do you have any? How did you do last year and what can you do to improve starting today to reach your goals?