Many people make resolutions each year to get their finances on track. But we also know that many people aren’t able to follow through with those resolutions, not because they aren’t determined, but because they don’t have a good plan in place to reach that goal. Here are several ways to get your finances in order and implement a plan to reach your financial goals.
What is your FinancialPlanning Situation?
Do you have a good idea of the money that you have comingin each month? And how much money youare paying out for expenses? If you don’tknow the answers to these questions, you are not alone. A Galluppoll shows that only 33 percent of Americans prepare a detailed householdbudget, while even less—around 30 percent—actually have a long-term financialplan with investing goals in place.However, this is exactly where you should start if you want to get agrip on your current financial situation.So, if you don’t have a budget, you can click hereto download a free printable budget to get you started!
How to talk toyour spouse about money
Getting a handle on your current financial situation isgoing to involve doing something that is very uncomfortable to do—talk to yourspouse about money! Financial stress canbe a huge weight on a relationship, and talking about it is not easy. However, there is a right way to approachtalking about money with your spouse or significant other, and there is a wrongway. Make sure that you avoid thepitfalls of talking about finances with your partner so that you can have aproductive conversation that helps you improve your financial situation—and doesn’tlead to you to divorce court! Beforestarting this discussion, I would definitely suggest that you read this articleabout When Not to Talkto Your Spouse About Finances so you canmake that conversation as productive as possible.
Here are also a few ideas about how to give your finances a health check and how to reduce the stress in your life by getting a budget in place. Ready to get into a better financial situation? Here is a great infographic from Chime Bank that gives a great summary of ways to get your financial resolutions in order this year. Chime offers a mobile banking feature, which can be extremely helpful for managing your money. You can find more about it here.
Save Money, LiveBetter
Do you save money each and every month? If not, you need to start. How much should you save? How often shouldyou save? What type of savings account do you need? Perhaps you’d like to save, but don’t evenknow where to start. We’re going tobreak it down for you, and make it easy.
Savings Challenge
There are several different savings challenges that youcan follow. Some lay out daily savingsamounts and are some weekly, in varying amounts. It really doesn’t matter which one youchoose, but getting into the savings habit is what is important. If you don’t have a lot of extra cash eachmonth, you may want to start with saving your extra change and then work yourway to larger amounts. These daily andweekly challenges are great to save up money short term for a vacation, Christmas,home improvements, or just to build up an emergency fund.
Related article: Learn to pay yourself when you get paid with the Payday Savings Plan
How much should you save each month? Well, there is no correct answer here. The important thing is to get in the habit ofsaving on a regular basis. Some factorsthat you may want to consider when deciding how much to set aside are:
- How much do I need to cover at least 3 months ofliving expenses (emergency fund)?
- Do I have any short-term items that I need tosave for? (vacation, new car, down payment for a home purchase)
- What long-term items should I save for? (retirement,children’s college education)
Regardless of what your savings goals might be, there aresome plans to get you on the right path.If you want to save more, you can always add in extra, but these SavingsChallenges a good place to start:
Savein 2019 Save $2019
WeeklySavings Challenge Save $1378
EveryPenny Counts: 365 Day Savings Challenge Save $667.95
Save for Retirement
Besides just building up a savings account for emergencyor other expenses in life, you will want to make sure that you are saving forretirement. There are several ways to dothis:
IRA—Individual Retirement Account
Set aside money before tax into the investments that youchoose. You will get to deductcontributions up to a specified limit on your current-year taxes.
Roth IRA
Set aside after-tax money into the investments that youchoose. You will not be allowed todeduct current contributions made to a Roth IRA, however, the growth of thewealth accumulated in a Roth IRA is tax-free.So when you withdraw it, you won’t owe taxes on the growth.
401k
This is an employer sponsored retirement vehicle. You have limited choices in the stocks or mutual funds that it can be invested in. Money contributed is typically pre-tax, and often, matched by your employer up to a certain percentage. For example, if you contribute two percent, your employer may match that contribution. So, you are getting the advantage of saving four percent of your income and only having to contribute two percent of it yourself.
SEP/Simple IRA—
This type of IRA is for self-employed individuals. These basically function as regular IRAs, but can also provide retirement accounts for employers of self-employed individuals.
Get a return ofpremium life insurance policy
So what does life insurance have to do with savings? Well, a returnof premium life insurance policy gives you piece of mind for your family asterm life insurance, but if you don’t need to use the benefit, you will receiveyour premiums back at the end of the insurance term. So, this insurance basically functions like asavings account. In a nutshell, thistype of insurance is term insurance and a savings account all rolled intoone. It is not quite as inexpensive as atypical term insurance policy, however, it is not as expensive as a whole lifepolicy either.
A standard term insurance policy only covers you for theterm of the policy. If you don’t need itduring that term, then the policy expires and you don’t receive any benefit,nor do you get your premiums back. Awhole life policy can be relatively expensive on a monthly basis, but doesprovide an insurance benefit if used, but if not, there is a cash value.
Pay Down Debt
One of the best ways to create a secure financial future is to pay down your existing debt. Whether it be credit cards, personal loans, or a mortgage, getting those items paid down and off will free up your finances. If you have several types of debts, you may not know where to start to get them paid down. Here are some guidelines to help you decide which debts to tackle first:
- Credit cards—most likely, you should start bypaying off your credit cards first.Credit cards are revolving debt, meaning that they compound interestdaily. So if you are only making minimumpayments each month, most of your payment is only going toward paying off theinterest that accrued that month. If youhave multiple credit cards, here is a system to figure out which one to pay offfirst:
- Lookfor the credit cards with the highest interest rates. You want to get these paid down quicklybecause the higher the interest rate, the less your payment is working towardgetting you debt free.
- Whichcredit cards have the lowest balances and the highest payments? If you have a credit card with a low balance,consider getting it paid off quickly. Forexample, the minimum payment may be the same for a credit card that has a $100 balanceor a $1000 balance—let’s say, $25. Getthe $100 balance card paid off first, then put the money that you wouldnormally have paid to that card onto the payment of the next credit card thatyou want to pay off. So once you havethe $100 credit card paid off, take the $25 payment that you were making on ittoward the $1000 balance card. Insteadof just paying the minimum payment of $25 on that credit card, now you arepaying $50 (or more if you can afford it) to get the principle balance paiddown quicker.
- Personal loan—if you have a personal loan for anauto or something similar, you can get that paid down after your credit carddebt. Typically, these types of personalloans are a fixed interest rate, on a fixed term, with simple interest, meaningthat the interest compounds monthly. Becausethese types of loans are a fixed rate and term, the compounding of the interestis limited, and already accounted for within your monthly payment. However, if you pay it off early, you can cutdown on some of the interest that you will have to pay. So once your credit cards are paid off, you caneasily put more money toward getting your car or other personal debt paid off.
- Mortgage loans—a mortgage loan is probably thelargest debt that you have and may seem like the best starting point. However, your mortgage loan is also probablythe lowest interest rate that you are paying on and it gives you a taxdeduction—of course, talk with your tax professional about your exact taxsituation to see what you may qualify for.While you will want to start with other debts to actually pay off first,you can make extra payments toward principle each month to reduce the overallterm of your mortgage. Here is a mortgagecalculator to help you figure out how many years you can save by makingextra principle payments.
