Financially planning your new year

If this past year has taught us anything, it is how unpredictable life can be. Last year this time, most people were planning and envisioning in anticipation for the new year. And then 2020 came. Life as we know it was disrupted and most people’s focus shifted to surviving. This, in essence is life. We plan for tomorrow, even when we don’t know what it looks like, or if we will even be here tomorrow.

“Many are the plans in a man’s heart, but it’s the Lord’s purpose that prevails” – Proverbs 19:21

We don’t know if 2021 looks like 2020, if it’s better, or even worse. And we shouldn’t be concerned about that because things beyond our control are none of our business. Our job is to make the best of whatever year we will get in 2021. So I do hope that you have dreams, hopes and goals for the new year.

A goal is different from a dream. It’s good to dream and hope, but dreams usually feel far-fetched and don’t need to be backed by a plan. Goals come from dreams. A goal usually has a plan attached to it. A great goal is specific, measurable, achievable, realistic and based on a timeline. Goals usually require action (some form of manpower or energy), time and money; resources that are all limited. To make the most of your resources you need to plan and allocate them well towards your goals. This post aims to provide some guidance on how to financially plan your new year.

1. Know your Numbers – Whether you would like to pay-off debt, fund new goals, new experiences, or invest this year, you will need to first determine how much each goal will cost you. You also need to add a timeline to it – How much time do you have? How much do you need to save every month towards that goal? In order to answer these questions, you need not to be clueless about your finances in general. On top of knowing an estimate of your expected income for the year, you should have a general idea of how much you need to survive – to cover essentials, to stay living, go to work and be able make minimum payments towards debt. It is the residual between your total income and what you need for survival that you will allocate towards your goals.

2. Focus –  One of the reasons why most new year resolutions fail is because we are trying to do too much at once. When you try to do everything, you spread yourself and resources too thin. Juggling also takes longer, causes overwhelm and can be discouraging. When you focus your energy on one goal, your residual income on one debt, you will see better progress faster and this is motivating.

3. Create Sinking funds – Although focusing on one goal is amazing, there are times when its not practical. Some goals have closely linked timelines. Sometimes you will need to save for long periods for one and sometimes even 2 or more goals consecutively. A sinking fund is a savings plan for future events or goals. With sinking funds, you basically have an account in which you are saving money to spend it on one or different goals. Unlike an emergency fund that you save for possible emergencies, sinking funds have a specific purpose.

4. Make more money – On the journey to financial independence, we mostly talk about reducing expenses to increase savings and investments. As you reduce your unnecessary expenses this year, work on increasing your income and streams of income. Do something valuable for someone. sell something. Take up a part-time job.

An extra N$300 a month to your savings makes N$3,600 in a year. Sometimes it can be discouraging to save small amounts of money like N$300, because it’s so little one can finish it in a day or 2. Avoid the temptation to spend the little you can save. N$300 invested consistently over time can do wonders with compound interest. And who knows? You might be in a position to increase the N$300 to N$500 in 2022. But you will always be where you are today if you don’t start. One small spark can burn a forest. Don’t disregard your small spark.

5. Build good habits –  We all mostly have good intentions for our lives. So for the most part, our plans and goals are good. However, if you do not take action towards your goals, they will remain goals. Personal finance is mostly impacted by behaviour than money. So this year, don’t just try to cut down on your expenses. Making more is pointless if you don’t align your behaviour to your goals. Build good money habits, automate your savings and other payments. Live within your means.

6. Enjoy the ride – Like many people, my 2020 was shitty. The one thing that made my year better though is I decided to be mindful about my attitude and looking for the good in bad situations.

Instead of thinking: “why is this happening to me?”, think: “I’m so glad I have an emergency fund to help with this.”

Find joy in the things you love. Create experiences that don’t cost too much. Splurge (if you can) on what you love. And be proud of yourself for taking action towards a good future. Deciding not to do certain things to achieve your financial goals is not a death sentence. A no to one expense is a yes to one goal. Be excited about working towards your goals. Feeling like good financial decisions are sacrificial will make you backslide. And we won’t be backsliding in 2021. Happy new year.