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One of the last things I do in 2021 is take a full expense inventory. Before I begin, I want to know what mistakes I need to watch out for as I dive deep and budget for 2022.
That’s why I asked Financial Advisors to share their top tips on how to spot budget errors so they don’t get carried over into the New Year.
1. Analyze the areas where you spend the most
One of the very first things I’m going to do is perform a full analysis of my drinking habits. Financial planner Jay Zigmont highly recommends it.
“Specifically, look at what you spent on dining out and shopping online,” Zigmont explains. “Every time we spend $ 20, or even $ 50 on a restaurant, it doesn’t sound like a lot, but it adds up.”
He said if you look at what you spend on eating out and then divide it by the amount you get paid per hour, you will get a figure for the number of hours you work each year just to eat. at the restaurant.
When it comes to online shopping, Zigmont recommends getting a prepaid debit card for this purpose and reloading it every month.
“When it runs out, it will bounce back and you’ll have to wait until next month,” Zigmont said. “Really quickly, you’ll cut your expenses.”
2. Don’t sacrifice your savings for short-term happiness
For many of us, our relationship with spending and saving can be complicated. That’s why financial advisor Scott Hasting said it’s important to understand your own negative spending trends. He thinks this has been especially crucial over the past two years, as life has only gotten more difficult for most people.
“Now it’s true that everyone struggles, but that doesn’t justify depleting savings just to achieve temporary happiness,” Hasting said. “While everyone deserves to buy a thing or two, by the time you use the phrase ‘I deserve this’ to justify every purchase you make, [you’ve] already [made] an error which must remain in 2021. “
3. Focus on and Stick to Good Financial Habits
Financial planner Brian Walsh said taking a close look at the positive financial habits you’ve developed in 2021 can also help you make good decisions in the New Year.
“Building financial habits takes time, so make a commitment first and stick to a routine,” Walsh said. “This includes committing to a weekly budget and reviewing it regularly, setting up an emergency savings account, and paying bills in advance so late fees don’t pile up, n ‘erode your savings and don’t damage your credit. ”
4. Create reminders to stay on track
If you take the 2021 inventory and notice that you’ve stopped making progress on most of your financial goals, Walsh recommends using this knowledge to help you plan for ways to stay motivated and on track in 2022.
“Simple and meaningful visual reminders can help maintain motivation once the initial excitement of tackling a financial goal wears off,” Walsh said. “You can use a sticky note on the bathroom mirror, a screen saver on your phone, a picture on your dashboard, and countless other ways to remind yourself of what’s important. ”
5. Eliminate recurring costs that you don’t use or forgot to write off
Walsh also said it’s important to remember to factor in any costs you intended to cut a few months ago that were on your credit card statement.
“Check your transactions for
services, subscriptions, and other recurring charges that can be tied to things you no longer use, “Walsh said.” Canceling even a few unused services and selling items you no longer need could help you earn hundreds. dollars you can spend on goals like saving for a vacation. “
6. Create a proactive savings plan in addition to reducing expenses
While it’s important to you to increase your net worth and save more money, financial advisor Erin Ellis recommends monitoring your savings habits in 2021 and see what needs to change for the next year.
“Start the year off on the right foot with a savings plan,” Ellis said. “You will establish a habit for yourself, so that once you start putting your money aside you will hopefully be on your way to greater financial security in 2022.”