The New Year is just two weeks apart. Now is the time to look at your finances to review whether you have achieved the goals you set at the beginning of this year. Pat your back if you have realised your goals; however, there is nothing to worry about if you get a disappointing report. As you cannot turn back the clock, there is no point dwelling in the past. What has happened has happened. Now, you should think about how you can make things better.

It is high time you evaluated your finances and fine-tuned your methods to achieve your goals. Economists say budgeting, debt payments and savings are three pillars to having complete control of your money. Here are the steps to help you get off on the right foot.

  • Set specific goals

Budgeting helps give you a clear direction to cover the distance between where you are and where you want to be. Many of you make a budget, yet you find it doing nothing in your favour. That is because you do not clearly define goals.

Before you create a budget, you should jot down specific and realistic goals. For instance, you have to settle half of your student debt and set aside 10% of your pay every month as a down payment on your house. Make sure the goals you set are SMART. It means they should be specific, measurable, attainable, relevant, and time-bound.

Try to use the SMART goals template if you do not know where to start. You might have a couple of goals that you would want to achieve. Chasing all of them at a time cannot be possible. In fact, you will be overwhelmed and, later on, give up in the middle. You should set the priority and make plans to achieve goals one by one.

For instance, if you are to pay off outstanding loans for unemployed and set aside money for the deposit of a mortgage, you should try to get rid of the debt as soon as possible. Then, you should lay aside a mortgage down payment if you are left with any money.

  • Review your previous year's spending

You need to figure out where you slipped up in the last year to bounce back. Get your account statement and look for a few things like unnecessary expenses, unused subscriptions, meal services, shopping, coffee and snacks.

You should know the average spending on each of these categories every month so you know how much money flowed out of your pocket. Sit down, take a piece of paper and pen and now find out how much you can whittle down. For instance, it is not necessary to order coffee from a café. Assuming once a week is more than enough and you can prepare it at home the rest of the days, your coffee expenses will straightaway cut to 16.67%. The more money you spend, the more money you will save.

Make a budgeting spreadsheet and keep tabs on your expenses. If you cannot manually track your expenses, use budgeting software. Just link your account and set your savings and spending goals. The app will let you access all information in one place and alert you when you are very close to your spending limit.

  • Create an emergency cushion

Unforeseen expenses can crop up at any time, and therefore, it is crucial to have one. As experts suggest that you must have at least three months' worth of your living cost, you choose a random figure to contribute to your emergency corpus.

Unfortunately, you do not realise that an emergency cushion and a sinking fund are not the same things. Emergency corpus is aimed at meeting unforeseen expenses, but what about planned expenses like stashing away for a laptop you intend to buy and laying aside for the down payment on your house or car?

It is fine to contribute 5 or 10% of your pay, depending on your budget, to your emergency cushion. Still, when it comes to deciding on how much amount you need to allocate to your sinking fund, you should review your previous year's account statement to figure out how much you need for your pre-planned expenses.

The size of your sinking fund must be equivalent to that estimation. Do not forget to add in if you know you need to make a big purchase this year. Now you know how much you need. The next step is to find out how much to save to have that much money in your savings. Divide that amount by the number of months when you need that money. Suppose you need that much money in 6 months, so divide the total amount you need by 6.

You can create a large sinking fund aimed at various planned expenses, or you can simply divide it into different categories. Divining your sinking fund into different categories will be much more manageable.

  • Plan your IRA contributions

IRA is substantial, especially if you are self-employed or you do not have access to 401(K). However, it does not mean you should not have an IRA if you contribute to 401(K). This will serve as an additional retirement fund.

In order to contribute to an IRA, you should work on how much money you want to contribute to it in a year and then divide that sum by 12. Instead of choosing a random figure, you will have to evaluate your budget. Based on your recurring expenses, emergency corpus and savings for planned expenses, you will be able to decide how much you can contribute to your IRA.

  • Revise your debt payment plan

Before IRA and sinking fund, debts come. You cannot stash away money for your unexpected and planned expenses unless you settle your debts. In fact, debt settlement should be your top priority, no matter what. Debt payments have several benefits, like improved credit scores and leveraging better interest rates.

If you want to continue to stick to your current debt payment plan, you should ask yourself whether you can pay off your debt faster if you follow a different payment plan. How can you increase the sum of payments? Does your budget have a scope to free up some money that you can use for the debt settlement? Will refinancing will be helpful to save money on interest?

If you are to build a payment strategy from scratch, you will have to figure out whether you want to get rid of high-interest debts first, like bad credit business loans from direct lenders or you want to go with debts of smaller size.

Once you have finalised your debt payment plan, you should opt for auto payments or direct debit system. Keep tabs on your sending so your account does not fall short of cash on the due date.

The bottom line

Before the start of 2024, you should take stock of your current finances to find out how close you are to the goals that you set at the beginning of 2023. Work on what you should do to take complete control of your money. Do not forget the three pillars – budgeting, debt payments and savings – to make a successful start.