How to Create a Financial Plan for the New Year

Is your money ready for a new year? Let's get it ready ASAP. Here's how you can create a financial plan that will get you on the right track for the coming year.

It's New Year's Eve and I'm on a bus, headed home from holiday travel. I'm tired but very interested in thinking about the coming year. This past year was a doozy, including just about every credit card I had being compromised, and ending with my debit card being stolen. In between, I've had health issues and changes in my personal relationships.

But this year is over. I'm ready for a new year — one that isn't a dumpster fire. And I've been thinking about how I want to create a financial plan that allows me to continue enjoying life. I've tried different experiments with my money over the years, from focusing on one big goal to setting up a travel fund to reducing my income to below six figures (that one failed).

As I've spent all day traveling, I've thought about what I want my money to accomplish for me in the coming year. If you're still on the fence about what to do with your money in the new year, here's how to create a financial plan that makes sense for you:

Step 1: Figure Out Your Values

Your first step is to figure out your values. What matters to you? What makes up the core of your personality? For me, my values can be boiled down as follows:

How you accomplish your values is a different issue altogether. But when it comes to figuring out what to do with your money, it helps to get down to the nitty-gritty of what matters to you. In the end, all of it points to creating a life of passion and purpose for me. A couple of years ago, I made a life map to help me sort through everything. This can be a great exercise to help you get to the heart of what matters to you and what kind of life you want.

I value kindness, thoughtfulness, and experiences. I hope to be better every day. Sometimes I make very little progress. And there are times I'm not as kind as I'd like to be. But those are things I value and I try to live up to them.

Your values might look different. And that's fine. Hell, my values today are different than they were seven or eight years ago. As you grow, your values change. But start with where you are today to get a feel for your year-long financial planning.

Step 2: Look at Your Finances as They Are

I'm in a good place, financially, right now. That wasn't the case 12 years ago. Honestly evaluate your finances and face up to the issues. You might have to make some changes — and you might be working on your goals for multiple years. Nothing wrong with that.

View your financial situation through the lens of your values. What do you notice? More than a decade ago, my values revolved around being self-sufficient and preparing for the future, along with caring for my son. My financial situation didn't reflect those values. My then-husband and I were drowning in debt and barely doing anything to set aside money for retirement.

After looking at your situation, figure out, realistically, what you need to fix in your financial life in order to bring it in line with your values. It's true that some issues take longer than a year to fix. But that doesn't mean you can't get started on making those changes now.

Step 3: Set Your Financial Priorities

One of the most important things you can do as you create a financial plan is to set your priorities. Your priorities should be based on your values and your current situation. Back when I had a ton of debt, the priority because devoting money to paying down the credit card balances. I put money toward repaying debt ahead of other things like eating out or buying an unnecessary pair of shoes.

Figure out what needs to be taken care of first. You probably have items like housing, bills, and groceries near the top of your priority list. Those are definite needs. But things get murkier as you head down the list. You start looking at wants and it might be a little more difficult to see everything funded.

However, that's how you need to proceed. Make sure the needs are covered, then move on to the most important wants. If you don't have enough money for a want, it gets dropped from the list.

Step 4: Find The Money

Now that you have your priorities, it's time to figure out where you're going to get the money. As you create a financial plan, understanding your cash flow is vital.

There are two main ways to find the money you need to make your financial plan work at funding your priorities:

  1. Cut expenses
  2. Earn more money

Cut expenses

I like to start by cutting spending that doesn't align with my values and priorities. Every year, I notice that, as the year progresses, my spending gets a little out of whack. I buy little doodads that don't really serve a purpose or bring me lasting satisfaction. Or I realize I've signed up for a subscription service I don't actually use. We all end up with that kind of spending. I've identified some spending from the last year that I'm not happy with, so I'm cutting it.

Depending on where you're at, the cuts might be based on more practical considerations. Back in the day, I pretty much had to cut out whatever didn't contribute to my survival. I had a newborn, a minimum-wage job, a husband in school, and credit card debt. When I decided that the credit card debt had to be tackled, I cut every bit of unnecessary spending and put it toward debt reduction.

Earn more money

Happily, I also discovered that earning more money is an option as well. Getting a second job is never a good time, but taking it on for a year or two can help you get a handle on your financial situation. Luckily, after I finished grad school, I discovered that technology offers us amazing ways to earn more money — without leaving the house.

As a freelancer, I can write a couple of extra articles or take on a new client to earn more money. There are plenty of side hustles ranging from Lyft driver to dog-walker that can provide you with additional cash. However you decide to go about it, if you have some extra time during the week, you can probably use it to earn more money and get a jump on your financial goals.

Step 5: Decide Where the Money Goes

Once you figure out where the money is coming from, you need to decide where it goes. Covering the necessities comes first. But once that's done, create a financial plan that divvies up the disposable income toward the things that matter to you.

First of all, I've got money I send to charities and causes I feel help others and improve my local community. After that, I know that each month a certain amount of money goes into the long-term emergency fund and another bit goes into my travel fund. I've got money earmarked for my son's 529 and for his extracurricular activities.

Before I got to this point, most of my extra money went toward paying down debt. Then it went toward aggressively building an emergency fund. In between, I started putting a small amount toward retirement and toward preparing to buy a home (didn't save up as much as I'd have liked for that goal). As other priorities were taken care of, more of the money shifted toward retirement.

When can you shift the money?

Eventually, I had enough extra cash to go out to eat once a week and to see a movie a couple of times a month. I started getting a mani/pedi once a month, too. And I began traveling more with my son. At one point, some of the money going toward the more ahem frivolous endeavors was siphoned off to prepare for a cross-country move.

For the most part, though, I looked at the priorities, made sure they were funded and went from there. And if circumstances meant a change in priorities, it was time to tweak the financial plan.

Step 6: Automate What You Can

When possible, automate your efforts. Schedule an extra credit card payment or student loan payment each month to help you get rid of your debt faster. When I had a mortgage, I paid it bi-weekly because, with our cash flow, it was easier to have two smaller payments each month. Of course, it also had the side effect of paying down the mortgage faster.

Today, most of my bills, from the insurance premiums to the cell phone service to the grocery delivery to the travel fund contribution, are automated. I even automate my charitable contributions. I'm careful to spread out the payments based on when I can reasonably expect income from my work. Spreading out the auto deductions also helps me avoid issues related to having everything out all at once, draining my bank account.

Step 7: Pay Attention and Tweak as Needed

Don't assume you can only create a financial plan at the beginning of the year and then follow it all year. Make it a point to review your plan at least twice a year. This year, I hope to review my plan once a quarter. It will force me to make sure my spending is in line with my values, and require me to double-check that my priorities haven't changed.

Plus, if something happens during the year, I might have to completely overhaul my financial plan. Losing a big client, or experiencing a major illness might require drastic changes.

No matter what time of year you read this, it's a good time to reflect on your situation and, if necessary, create a financial plan. Money shouldn't wait until just one time a year. It's a relationship you should revisit throughout the year.


What Am I Doing With My Money This Year?

Readers regularly ask what I'm doing with my money in the coming year. I'm pretty boring, but I thought I'd share some of my plans for my own finances, pending that quarterly review, of course.

Increase my charitable contributions

I've been fortunate to meet my financial goals and objectives this year, so it makes sense for me to increase what I've been giving to causes and organizations I believe in.

Slightly decrease my monthly travel fund contributions

My travel fund has done quite well and after last summer's Viking River Cruise, my son and I are keeping things a little low-key this year. We'll still have a spring break adventure, but we're not doing a massive summer trip. We've done them the last three summers, and it's time for a bit of a breather. But the contributions will still be going into the travel fund, no doubt.

Spend a little more on my son's extracurriculars

My son has an opportunity to participate in a mock-government trip to our state capital (and capitol) this year. So, I'm sending him on that. Plus, with the fencing class dissolving, I'll have to pay for private lessons if he is to continue his efforts in that area.

Car insurance for The Boy

This will be a fun new expense as we explore the uncharted territory of teen driving.

Maybe play around with some cryptocurrencies

While I'm not getting into Bitcoin where it's at, I've been covering cryptos for several years now, and I might try something like Litecoin or Dash. This is not for the faint of heart, however, and it would purely be experimental, with money I can afford to lose.

A lot will stay the same

Other than that, my spending looks similar to years of the recent past. I continue to contribute the same amounts to my retirement and long-term emergency savings accounts. My grocery delivery bill will likely remain the same since I began eating healthier last year and plan to continue the habit, so there's no need to change things up. My parents gave my son and me a 30-day gym membership for Christmas and we'll try it out. If we like it, I'll probably add that to my monthly spending.

Your turn: how are you planning your spending for the new year? Any changes? Any big goals? I'd love to read them.

8 thoughts on “How to Create a Financial Plan for the New Year”

  1. Ramona @ Personal Finance Today

    I plan on tracking my money better and also become even more productive. If I succeed with these two, it should be easy to manage money properly and also enjoy life.

  2. Thanks for this. I think it’s great to have a reminder to think about values and making your money underscore those. I have gotten very good at monthly budgeting, but I keep finding that my bigger goals (other than vacationing) get lost in my month to month needs and smaller wants. Just this morning my best friend and I filled out some goal sheets for 2018, and they focused on health, love, work, and fun. I even remarked to her that I was surprised that “money” wasn’t a category. I just read this article and have decided to add a page or two to the packet we filled out this morning–I want to know where I’m headed financially this year, not just this month!

    1. Good idea! And taking into account money is always good. How we end up managing money so often determines our level of satisfaction in other areas of life. All the best to you in the new year!


    My main goal this year is to cut down on expenses. I started that by switching cable companies and dropping Netflix. By doing so we were able to save about $110 per month. Next stop will be cutting down on eating out by 40%.

    Great post and really timely.

      1. Bernz JP

        Actually, we were able to save that much because it was a bundled package (Cable and internet) and we decided to drop our landline from the previous provider. I realized that no one in our family (family of 4) uses our landline anymore anyway so why not let it go.

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