People who like talking about their personal finances are few and far between. It’s not a comfortable subject for many people, often because many of us are burdened with debt that makes having healthy finances seem impossible.
Drowning in Debt
In fact, two in ten adults say they roll over $2,500 or more a month in credit card debt. Not to mention student loans, which totaled $1.524 trillion in 2018, add up to a monthly payment of $393 on average. It may be hard to imagine hundreds of dollars each month going to paying off debt, but that’s a fact of life for many people. To then think of savings and retirement, healthy finances can quickly feel like a pipe dream.
But there are some simple things you can do to get your finances on the right track:
Start a Budget
Budgeting can sound like such a drag, and it can take a little bit of work to figure it out. But putting in a little bit of time to decide on a monthly budget and sticking to it is the first step to knowing what you’re spending money on and how you can make your money work for you better.
Money experts suggest starting a budget by looking at your past month’s spending. Go through every transaction and add up totals for groceries, power bill, eating out, etc. Then create a budget for the next month based off of reasonable projections from the month before.
It may take a few adjustments, though. If you spent 40% of your monthly income eating out and don’t have money to allocate to rent, then it’s obvious which category should be reduced. Keep shuffling the amounts until you have budgeted every single dollar of your paycheck.
There are several great apps available to do this. A personal favorite of ours is You Need a Budget, which essentially functions as Quickbooks but for your personal finances.
Have an Emergency Fund
Once you’ve looked over your transactions and started deciding on your budget categories, add in another category called “Emergency Fund.” An emergency fund is crucial to avoiding more debt. For example, if you need to replace the alternator in your car, you can use the money in your emergency fund to pay it right away instead of putting that charge on your credit card (to then pay interest on it). Though you’ll eventually want to save more, first try to save up $1,000 to cover these unforeseen expenses.
Pay off Debt
Now that you have a budget and an emergency fund, it’s time to start paying off that debt! Start with credit card debt first because the interest tends to be the highest. Even though it can be painful for your budget, you’ll thank yourself when it’s paid off. And think twice before adding more debt onto your plate. If you can wait to buy a car, for example, wait until you’ve taken care of your other debt responsibilities. The goal is to get as much debt paid off as quickly as possible so you can put hundreds of dollars a month back into your wallet instead of contributing to credit card companies’ bottom line.
Save for Retirement (even if you don’t want to!)
Retirement can feel so far off to many people. It’s true that most of us will work for decades before being able to call it quits, but the truth is that saving for retirement early is one of the most important things you can do to ensure your overall financial health into the future.
In fact, $1 contributed at age 20 can grow to $5.84 by the time you’re 65. That same $1 contributed at age 40 will only be worth $2.67 at age 65, less than half the value! Use time to your advantage as much as possible and put all the money that you can into your retirement account. The goal would be to aim for 15% of your income. If that’s simply not doable based off your income and debt, at least put in the amount that your company matches. Though small, it can start to add up, and you’ll thank yourself in a few years that you did it.
Have Money for Big Purchases Ahead of Time
If you can’t tell, debt is one the most important things to avoid for financial health. Not all debt is bad, by any means, but Americans are overloaded with it.
Instead of making a purchase before you have the money for it, start budgeting to save for it ahead of time. For example, if you know that you want to go on a vacation every year in July, start saving the previous August for the vacation. Saving up just $150 per month will give you $1800 by the following July. This is so much better than putting $1800 on your credit card and getting charged interest until you pay it off. The same concept applies for Christmas gifts.
Once you realize the things you can start saving for in advance, it’s quite freeing to experience vacations or give Christmas gifts without that pit in your stomach. You’re freed up to enjoy everything more because your hard work of saving up over the course of the year pays off!
Know Where you Stand
All of this probably feels daunting, but change doesn’t have to happen overnight. It simply means taking the first step toward examining your finances and over time, making changes to get on the right track. Once you do, you’ll feel better for it.
Make 2020 the year that you look back and see all that you accomplished for your financial wellness. If you have questions or need help along the way, the staff at your local Highlands Community Bank is happy to help guide you toward healthy finances this year.
Leave a Reply