This post is written by *Erin Ellis, a mom of two and an accredited financial educator. We figured that now is the time of year we all vow to spend less/shop less/save more/be more adult about money and so forth. And so we asked Erin to write a few tips on what, exactly, we should be aiming to do … and a few ideas about how to do it. (We’re all about the free financial advice from experts!) Here, her thoughts.
Every year, we make New Year’s resolutions with the best intentions of keeping them in the coming year. You know the common promises we make to yourselves: Eating healthier, working out consistently, giving up our vices and setting financial goals. But while changing your diet and fitness routine comes down to personal willpower, there are a few immediate actionable ways you can begin establishing healthy financial habits for your family right now. Check out these six smart financial resolutions (and tips for how to make them stick in 2018).
Start a college savings plan
If you’re a parent to littles, one of the best financial resolutions you can make this year is to start saving now for your children’s college education. Investing in a 529 savings plan early on will allow your money to grow over time. The Pennsylvania 529 College Savings Program offers a smart, tax–advantaged way for families to save for college. Even if your children are older, make a resolution to open a 529 account for them this year because every dollar counts toward their future.
Build an emergency savings fund
The rule of thumb for an emergency savings fund is typically to save between three and six months’ worth of expenses, but saving any amount will help you set aside funds for an emergency. Do your best to contribute a small amount each paycheck and work toward a realistic goal for 2018.
Develop a realistic budget
To set a realistic budget for the new year, go through the last few months of expenses to understand where your money is going. Personally, I’ve been focused on taking a close look at my family’s expenses and spending habits to identify where we can make changes. I wrote down everything by hand that my family and I purchased in December, including holiday presents. This exercise allowed me to categorize family spending and helped to determine my family’s budget for the following month, and it can help you, too. Talk openly with your spouse or partner to align on this process.
Plan for your tax return ahead of time
A tax return may feel like a windfall, but no matter the amount, it can disappear quickly if you don’t have a strategy in mind. Develop a plan now to decide how you will spend the money, if at all. Will you put these funds toward emergency savings or pay down credit card/student loan debt? Do you have a family vacation planned for later in the year that could benefit from the extra money? Creating a plan for your tax return ahead of time will keep you from spending it frivolously.
Another way to make financially smart decisions in 2018 is to set up different savings accounts for various goals. Label different accounts based on your needs and set up automatic transfers from your paycheck to add to rolling savings accounts. A big priority in my household is saving for day care costs. We plan a couple weeks ahead to make sure we always have enough to cover this cost. Whether you’re saving for a vacation, the holidays, or once–a–year expenses like car registration, inspection, windshield wipers and tires, designating around $15 per month to different savings accounts is a calculated way to account for various expenses.
Visualize and discuss your goals
It’s difficult to stick to your financial resolutions unless you’re focused on the big picture. Visualize together with your spouse or partner the reasons why you’re saving and determine what goals are most important to your family. Talk it out or visualize your bigger-picture plan with actual pictures of specific goals – a beach getaway, a new washing machine, a $0 credit card balance – to keep your financial resolutions top of mind in 2018.
*About our author: Erin Ellis is an Accredited Financial Educator at Philadelphia Federal Credit Union (PFCU), where she develops PFCU’s financial education curriculum, provides one-on-one counseling with members and presents financial seminars to PFCU members and a wide network of social services organizations throughout the Philadelphia region. As a mother of two, Erin is passionate about helping individuals and families better manage their money and achieve financial goals.