by Jan Combs, former financial aid officer at Harvard Graduate School of Education
With 2021 just hours away, many will be contemplating their New Year’s resolutions. Eating healthier, carving out more “me time,” reading more, or restarting that favorite hobby… Those are all worthy resolutions for the new year, but can I add one more for your consideration? How about focusing on financial literacy in 2021? This is one of my favorite resolutions, and there is no better time to regroup and freshen up that financial plan than at the beginning of a new year!
Whether you have young children and want to save for college, have kids currently in college and need to cover that tuition bill, or you have financial goals unrelated to education, like building an emergency fund, saving for retirement, or starting your own business, now is a great time to focus on finances and set some personal fiscal goals.
One tool indispensable to money management is a spending plan. A spending plan provides the opportunity to chart a course and take control over your money. It is a handy document used to allocate your cash flow and plot your savings initiatives. A spending plan is similar to a budget—a tool to track income and expenses—but a personal spending plan takes budgeting a step further by creating a roadmap for reaching your financial goals.
Spending plans help motivate you to monitor your income and chart expenses for each pay period. After accounting for all income sources and all required expenditures and debt obligations, determine the amount of funds that is left over. Then, assign every dollar from that available pool of money to a goal. Perhaps allocate a portion of available funds to bolster your emergency fund, earmark a percentage to college savings, and allocate another chunk of money for that special trip you have in mind. You can (and, in fact, should) earmark a certain amount of your weekly or monthly income to fun—that latte on the run, movie on demand, or new pair of boots. If your spending plan feels too prohibitive and doesn’t make room for things that bring you joy, then it is bound to fail.
When using a spending plan, you make a conscious effort to designate where money should go, as opposed to unconsciously spending as opportunities to spend present themselves (because they will always present themselves). Planning where you want to spend your money gives you the power to make decisions that align with your values; you get to decide, based on your priorities and goals, what’s important to you, so you can spend your money on that, and not on things that are not a priority. You should make sure to pay yourself first, develop the habit of saving for specific objectives, and build a cushion for unexpected expenses. Remember, it is A-OK to start small—every dollar you save is a step toward the final goal!
There are many online spending plan templates that will support you in developing a sound personal financial plan or you can create your own system. Just remember to:
- Use a system that works for you;
- Keep it simple;
- Let your values and priorities guide your decisions;
- Commit an hour every pay cycle to review your spending for that cycle and your game plan for the next;
- And don’t beat yourself up. If you fall short on a target (which will happen from time to time), figure out what went wrong and how you can fix it in the next cycle.
Happy New Year—may you have good health and financial joy in 2021!