Financial reset: What it is, how to do it, and why

On New Year’s Eve, many of us make resolutions to reset or commit to new goals. We may not wind up losing weight, reading more books, or finding a new job, but at least we’re working to improve ourselves and our lives.

Periodically taking a step back to look at your finances can also be a valuable way to reflect and realign your spending with the life you want. A financial reset is an excellent way to change how you think about money, improve your finances, and realign your money habits with your values. The best part? You don’t have to wait until New Year’s Eve to do it.

The value of a financial reset

Even if you already have specific financial and life goals, a financial reset can also help you align your finances with the most important things to you as your life evolves and changes. It will give you a fresh look at your spending, saving, and investing. Here’s how to get started.

1. Get ahead by looking back

The first step in a financial reset is to reflect on the financial decisions you’ve made over the last year or two. Ask yourself:

• What changed for me financially in the past year, and did my financial decisions play out the way I intended?
• What decisions would I make differently knowing what I know now?
• Did my relationship with money and the way I think about money change?
• Are my financial choices aligned with my priorities and values, and are they helping me achieve the life I want to live?

And the big one: What did I learn?

You may discover you’re doing everything right and decide that your strategy works well. However, you may also uncover some things you weren’t aware of, which can help drive your next steps to align your spending and saving with your priorities.

2. Start filling in the gaps

What would you like to know about money and finances that you may be missing now? A better understanding of what money means to you? How credit scores work, and in what ways can you improve yours? How to align your spending with your values? Or perhaps whether money can buy you happiness?

A good starting point to educate yourself is the Facet Learn site, a free library of everything related to finance, from the basics to minimizing your taxes to choosing a credit card that fits your lifestyle. Your Facet planner is also a fantastic guide.

3. Know where you stand

You can’t set goals and start a financial reset without a solid understanding of your current financial picture. That involves four factors.

• Credit report
• Spending
• Financial wellness
• Credit score

These factors are critical because rethinking your financial life depends as much on data and numbers as it does on your feelings and values. Having a handle on your credit score and report and understanding your current spending and financial wellness will be invaluable in choosing your next steps. Although financial decisions are often emotional, using data that spells out your current financial situation can help you make a logical decision that still aligns with your priorities.

Start with your credit report. This will show every loan and credit card in your name, as well as your payment history for many of your accounts. By law, you may receive one free credit report from each of the three main credit bureaus (Experian, Equifax, and TransUnion) each year. You may also request a free credit report when you apply for credit and are denied. Check here to get started.

Side note: Because you’re allowed one free credit report from each of the three bureaus annually, we suggest requesting a credit report from one of the bureaus every four months. This will give you a more current view of your credit situation.

Once you receive your credit reports, look closely for errors (which happen about 20% of the time). The credit reports will include instructions about what to do if anything on your report is inaccurate. Keep in mind that erroneous information can significantly affect your credit score.

Next, take a look at your spending. If you don’t currently track your spending, at least start writing down your expenses for a month or so to see where your money goes. Take note of occasional expenses, too, such as travel or large purchases.

4. Revisit your plans

Financial planning is an ongoing, dynamic process, not a static plan that never changes, which is why doing a financial reset is so important. Part of your financial reset includes reevaluating your planning process (or working with a professional to get started). 

• Does it need any adjustments? 
• Have you learned anything helpful or gained clarity around planning topics you didn’t have when you started your planning journey?

Think about what you’d like to change about your financial life. You may have a significant financial change from a major life event, or things may seem relatively steady. You may feel more secure by beefing up your emergency fund. You may want to save for a new car or a house or put more away for retirement. Maybe you want to start or expand a side hustle as another source of income or even, one day, a full-time job. Or perhaps you simply want to have a better handle on your money and where it goes.

Whatever your priorities may be, set yourself up for success. Even for your biggest plans, start small. Research shows that we’re more likely to achieve our desired outcome if we take incremental, small steps rather than make massive changes that often don’t stick. The same way a major feat like running a marathon starts by jogging around the block and slowly building your stamina and endurance, small financial changes can result in huge accomplishments.

Final word

Life is dynamic, and your financial situation and priorities will change more often than you think. Analyzing and rethinking your finances should be done at least once or twice a year. Measure and celebrate your progress, re-examine your priorities and adjust as needed.

Above all, remember that you ultimately control your financial life, and you can change it whenever you wish. A financial reset is an excellent way to start.