Your sign to get your finances in shape

The first months of the year tend to be the perfect time to reflect and decide how you want to shape our finances going forward. From reviewing resolutions, to dissecting financial highs and lows, to identifying how to cultivate more wins, here’s how to become more financially empowered in the year ahead.

To move a few steps forward, it’s essential to look a few steps back. Understanding your financial behavior isn't about being overly hard on yourself for a few missteps or patting yourself on the back for big wins. It's about gaining insights on how you deal with money. So, what worked well in past? Perhaps budgeting became more manageable, or you paid off a sizable loan. What didn’t go so well? Maybe an online shopping spree got out of hand or a late payment incurred some fees. 

Whether you've had more stumbles or successes isn’t really important here. The trick is recognizing these experiences as valuable lessons, not just transactions. By understanding past financial decisions, you'll prepare yourself better for the adventures ahead. These insights can help you understand which financial behaviors you want to cultivate — and which you might want to leave behind.

To reset your financial compass this year, a complete financial health checkup is essential. That means getting a realistic view of your budgets and net worth. Once you have a snapshot of both components, you can start making realistic and motivating financial goals for the year ahead.

A budget isn’t just a list of numbers; it reflects your financial goals, limitations, and habits. It serves as a snapshot of your financial health, helping you to track your income against your expenses and to better understand your cash flow. Once you have a clear idea of your incomings and outgoings, it becomes easier to fine-tune your budgets to align with your goals, since we know how much we can comfortably start saving each month. The 50/30/20 method is an excellent place to look if you don't know where to start.

Net worth — the difference between how much you have and and how much you owe — is crucial in understanding your financial health. Assets can include savings, investments, cash deposits, and property, while liabilities include any debts or loans you might have. This calculation is a powerful tool for identifying where you stand financially and determining which areas you may want to focus on building or reducing. 

Knowing your net worth can directly inform your financial goals for the year. For example, having a small or negative net worth due to outstanding debts could be inspiration to focus more on becoming debt-free. Likewise, having a chunk of money in the bank could lead you to invest or make a down payment on a property. 

With the knowledge of the previous year’s successes and failures and a better understanding of your financial health, you'll be in a great position to start crafting some financial goals. Start by reviewing any previous goals you might have set to see if they’re still relevant. For example, a step up the career ladder and a pay rise or a return to school and a pay cut in the last year would require adjusting any goals to accommodate the new financial reality.

Then, it’s time to dig deep and work out what kind of a lifestyle you'd want to cultivate over the next months. Maybe it’s a life filled with backpacking adventures, dedicated to raising a family, or both. Ultimately, no matter what your hopes and dreams are, your financial goals should support you in getting to where you want to be — and that requires a little thought and planning.

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If life is anything, it’s unpredictable, so it’s wise to be prepared for its unforeseen plot twists. A great way to do so is to save for an emergency fund. This is a savings buffer kept separate from any other accounts that can only be dipped into during an emergency.

Calculate your monthly expenses, including rent or mortgage, utilities, and other essentials, to determine how much you'll want to to put aside. Experts typically recommend saving enough to cover three to six months' worth of expenses.

Admittedly, filing out a tax return isn’t the first thing on many minds at the beginning of a new year, but it can come with several perks. For starters, filing early can mean getting any tax rebates back sooner and help dodge processing delays or late fees. Additionally, it can protect you from tax-related identity theft, as filing early helps you beat potential scammers to the punch, securing your refund and personal information​​. 

Doing your taxes ahead of time can be more than just ticking a box; it could become a savvy financial move that benefits your future self. You can change your personal narrative about tax season, turning it from a stress-inducing period into a well-planned, financially beneficial stride into the new year.

Let's talk about the elephant in the room: debt. It's like that uninvited party guest who just doesn’t know when to leave. So, how do you show debt the door? First, you'll want to grab a pen and paper (or their digital equivalent) and jot down every debt you have — yes, every single one. This list will act as a roadmap. Then, identify and group all the high-interest and low-interest debts and put them into separate columns.

There are many ways to tackle debt, but two of the most popular are the debt avalanche and debt snowball methods. The avalanche method is efficient and logical and targets high-interest debts first, which saves more money in the long run. In contrast, the snowball method is motivated by quick wins and focuses on clearing smaller debts first, which can be more immediately rewarding and encouraging in the present.

With either method, the most important thing is to get started. Getting out of debt isn't just about numbers; it's about reclaiming peace of mind and reshaping your financial future. It’s not a sprint to the finish line, but consistent, smart steps towards financial freedom.

Whatever your way of banking, N26 gives you the tools to manage your money how you want. Thanks to features like N26 Insights, you can get a simple and quick overview of your finances — and make sure you’re always on track with your budget. Plus, push notifications help you monitor your account activity in real-time, empowering you to always be in the know of where your money is going. Get ready to master your spending with an N26 account.