Financial Planning – Designing a Proactive Year

financial planning

It's the start of a brand new year, and you've decided that this is the year that you want to get your finances in the best shape they've ever been in your life. What a wise decision!

Luckily, there's no better time to do it than now because you have a concrete, substantial period of time to dramatically change your financial situation.

Here are some tips that should help your financial planning process and allow you to start getting your financial goals organized for the next 12 months.

With the help of these strategies, you should find it easy to organize your own financial success.

Take It a Month at a Time

Write down exactly how much money you make in a year, and divide that by 12 so you know how much you make per month.

Calculate your expenses, including every monthly bill you pay, from insurance to utilities.

Once you do that, take a look at your total amount of debt, or at least a substantial part of it – if you definitely have more than you could realistically pay off in a year, try to pick one debt that you do want to totally pay off, like a specific credit card balance or a specific loan.

Let's say you decide that you want to pay off all of your credit card balances.

Total them up to find out just how much you would need to allocate to your credit cards to pay them off within the next 12 months.

Divide that amount by 12, and factor that amount into your budget.

That is now how much you'll pay on your credit cards every month, and barring interest and fees, you will be able to pay off your entire balance by the end of the year.

Make Some Room In Your Budget

Now, you may have set this goal of paying off your credit cards, but your budget is looking a little tight, and you don't know how much wiggle room you have to accommodate paying off all of your credit card balances.

This is understandable if your total balances far outweigh your annual income. If that is the case you either need to find ways to increase your income, or rethink your goal of paying off all of your credit card debt this year.

But what if your current income is good and there are things you can do to curb your expenses so that you can fit these payments into your monthly budget?  

Take a look at your extra expenses, like entertainment, and see if you can cut out some of those costs.

Look at how much money you spend at restaurants, and see if you can spend far less money by buying groceries and cooking at home.

Related: 101 Frugal Tips to Help You Save Money

Cut down on your cell phone usage, so that it will cost you less per month. All of those other little snacks too, like candy bars and coffee, can go, because they're not essentials, and they're not even nutritious or part of your meal – they're just filler, and filler can be cut out very easily.

Don't Waver From Your Goals

Now, as each month goes by, be sure to track your progress – you want to achieve your goals by paying off the amount on your credit cards that you want to, while still being able to afford the regular bills that you need to keep up.

Problems with this can easily be avoided in the planning stages, by making the appropriate cuts to your budget and setting realistic goals that are actually possible to reasonably pay off. This way, you don't get into trouble and end up not eating because your food budget was made too stringently.

In the event that you simply cannot make your goal, it might be time to scale it back a bit.

Maybe you can just pay off a certain percentage of your credit card debt in the next 12 months.

Re–evaluate your income and expenditures, taking a more honest look at what you can cut back on and seeing how much of your funds that will take up, and figure out the most you can pay while still staying under budget each month.

End of the Year

By the time you've reached the end of the twelfth month, you've either completely paid off your credit cards or you've made substantial progress on them, for which you should be applauded.

The great part about this is that, despite feeling like you've spent more money, you've actually saved it when you consider all the interest and fees that go along with debt of any form.

So what should you do next year?

Well, for starters, if you have any other financial hurdles to overcome (paying off a mortgage or car loan, home improvement or remodeling), you can make that the following year's goal.

Just do the same things that you did this year – divide the amount of money you need to allot for it by 12, and put that towards the debt/project each month.

If you're able to live comfortably despite the reduced budget you've put yourself on, so much the better – you can start to save money for other things even after paying off everything that you need and begin experiencing true financial success.


    • Grayson @ Debt Roundup

      Grayson @ Debt Roundup 01/01/2013 7:52 a.m. #

      Not wavering from your goals is one of the most important steps. Goals are great, but they have to be followed to be successful.

      • Sicorra

        Sicorra 01/02/2013 1 p.m. #

        Sometimes it is hard, but it is important to stick with it.

    • krantcents

      krantcents 01/01/2013 8:40 a.m. #

      What usually works for me is even smaller goals or shorter time period. Instead of a month, I set up daily/weekly/monthly tasks. I find it easier!

      • Sicorra

        Sicorra 01/02/2013 1:03 p.m. #

        I think there is a difference between a goal and a task. I see a goals as a major milestone, such as saving $25K for a downpayment on a house and all of the things that I did to achieve that goal as tasks, not smaller goals.

    • DC @ Young Adult Money

      DC @ Young Adult Money 01/01/2013 9:08 a.m. #

      I like the idea of taking it one month at a time. Sometimes there is only so much you can do in a given month to pay down debt. You aren't going to magically make $15k this month on top of your regular income. It's just not realistic. Seeing what you can do this month and planning out the next month or two is the best way to pay down debt.

      • Sicorra

        Sicorra 01/02/2013 1:08 p.m. #

        True, you may not make a huge chunk of change in any given month. But planning out the whole year at the beginning and then breaking your finances down month by month, I think, helps to automate paying your expenses and paying off your debt.

    • John S @ Frugal Rules

      John S @ Frugal Rules 01/02/2013 8:28 a.m. #

      Great suggestions Sicorra! I love that you suggest breaking it down to monthly numbers. That can make your goals much easier to accomplish while at the same time allowing you to see where you need to be month to month.

      • Sicorra

        Sicorra 01/02/2013 1:13 p.m. #

        It helps you have better control over your money, doesn't it?

    • Catherine

      Catherine 01/02/2013 8:59 a.m. #

      I wish I knew exactly how much I will make in a year. My income fluctuates which is super annoying when it comes to budgeting. We do work our budget by the week (usually 3 mos at a time) which works well for us.

      • Tackling Our Debt

        Tackling Our Debt 01/02/2013 1:14 p.m. #

        Ours fluctuates as well and it can be difficult. I try to calculate things based on the bare minimum that I know we will earn.

    • CreditSpark

      CreditSpark 01/02/2013 9:20 a.m. #

      You are spot on! I think the most important part of financial well-being is to always keep in mind what your goal is and to never stop tracking. Many people make budgets as a resolution but the ones that succeed track spending against their budget each month.

      • Tackling Our Debt

        Tackling Our Debt 01/02/2013 1:21 p.m. #

        Tracking everything can easily feel like a chore. Like today I should be getting my spreadsheet ready for January. But you are right, if you keep your goal in mind it gives you a reason to keep doing it.

    • Marie at FamilyMoneyValues

      Marie at FamilyMoneyValues 01/02/2013 10:21 a.m. #

      Set a goal, plan it out, track it. Very good suggestions for getting ahead!

      • Tackling Our Debt

        Tackling Our Debt 01/02/2013 1:23 p.m. #

        Thanks Marie!

    • Jacob @ iHeartBudgets

      Jacob @ iHeartBudgets 01/02/2013 10:42 a.m. #

      I like the idea of "cutting out the filler" I may need to borrow that :)

      • Tackling Our Debt

        Tackling Our Debt 01/02/2013 1:16 p.m. #

        What this article labels as filler I think most people would label as treats.

    • AverageJoe

      AverageJoe 01/02/2013 2:40 p.m. #

      I'm also in that "cut out the filler" mode (although doughnuts totally aren't filler...necessity....).

      • Sicorra

        Sicorra 01/02/2013 2:50 p.m. #

        I can't remember the last time I had a doughnut.

    • Shannon @ The Heavy Purse

      Shannon @ The Heavy Purse 01/02/2013 3:14 p.m. #

      Great tips, Sicorra. It's the perfect time (okay, any time is the perfect time) to get finances in order. It can be a slippery slope once you start wavering from your goals. :D Finances are fun for me, but I know that's not the case for everyone. But I tell my clients it is FUN to see how much they can save every month!

      • Sicorra

        Sicorra 01/02/2013 4:44 p.m. #

        I really like that you do that with your clients and your kids. It puts a positive spin on things, especially if a person is short on cash. If a person is short on cash it is easy to get depressed and give up quickly. So it is important to find ways to make dealing with your finances more enjoyable.

    • Kyle @

      Kyle @ 01/02/2013 6:29 p.m. #

      Great tips. I am hoping to cut back on extraneous costs like eating out and expensive entertainment this year, they are real budget busters for me. All the best in 2013.

      • Sicorra

        Sicorra 01/04/2013 10:40 a.m. #

        Dining out can add up quickly. It was easy for us to stop dining out because there aren't that many restaurants that we really enjoy anymore.

    • David

      David 01/03/2013 6:01 p.m. #

      Hi Sicorra,
      Your piece on financial planning is excellent. There is no reason to rush things.At the same time, it is important to pay off credit card balances and review our current expenses so unnecessary items can be removed.

      • Sicorra

        Sicorra 01/04/2013 10:44 a.m. #

        Thanks very much!

        Until a person takes a good look at what they spend on things each month they are usually clueless about where all of the income is going.

        Many years ago I had a friend that moved here from Australia with 2 kids. In Australia she was making lots of money and she said that she rarely paid attention to her spending. When she came here she initially had to live off of welfare and she said it was a huge adjustment for her to have to pay such close attention to her spending.

    • Krystal Miller

      Krystal Miller 01/03/2013 9:41 p.m. #

      I'm going to keep more in savings rather than spending it (unless, of course, bills come in the way!)

    • Corina Ramos

      Corina Ramos 01/04/2013 1:25 p.m. #

      Hi Sicorra,

      Breaking it down per month has always been easier for me to manage my budget. I have a monthly expense sheet to help me keep track of my monthly expenses and I can easily see if I'm saving or spending more month over month. As far as credit cards go, I only have two for emergencies and I use it once a month to keep it active. My financial situation in the past has taught me to be smarter with money : )

      Thanks for sharing your ideas!

    • KK @ Student Debt Survivor

      KK @ Student Debt Survivor 01/04/2013 7:56 p.m. #

      We pretty much make and spend the same amounts each month, so that makes budgeting easier. We just add more money to the budget for special events/holidays etc. as needed. BF and I have been talking about the costs and benefits of paying off our mortgage aggressively. For now we're going to try to make a few extra payments per year until we can figure out a better plan.

    • Laurie

      Laurie 01/11/2013 5:52 p.m. #

      Sicorra, thanks so much for the great post. We are just starting on our road to debt-free and your outline is a very helpful way for us to break down our plan into small steps. Thanks much!

      • Sicorra

        Sicorra 01/12/2013 10:12 a.m. #

        Thanks Laurie! We are working on it too. Some days are easier than others. Good luck on getting your debt sorted out and thanks for stopping by.

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