Another year, another set of resolutions. If you’re amongst the group of individuals who have placed getting your finances on track as one of your top priorities for the New Year, here’s a blog full of tips of things to help you get on track and on December 31st of this year, have you looking back proudly on all that you’ve accomplished for yourself. Let’s begin your first day of your bright financial forever!
Ditch: Just focusing on bills and entertainment
We know that for some, the reality is you’re living paycheck to paycheck. A 2017 Career builder survey even found that 28% of people who were in the $50-$99K bracket live paycheck to paycheck and 70% of them were in debt. More money doesn’t always mean less financial stress. With that in mind, it’s important to evaluate what your priorities are and align your spending with them. Bills are inevitable and you should allow yourself a little money to spend for pleasure, but these two are not the full picture. If you’re only considering these two areas, you continue to live paycheck to paycheck because you’re not setting aside money for savings. Look at your bills and see what can be cut down or eliminated. Call your service providers to see if there are new promotions you can take advantage of soon. See if you have redundant expenses like cable and TV streaming apps. Look for ways to free up money
Keep: Pay yourself first
To the point above, you want a financial situation that affords you benefits in the future. If you’re only paying bills and using the rest for basics necessities and some entertainment, how are you preparing yourself for anything else? If you’re not doing so already, you should be setting aside between 10%-20% of each paycheck for yourself. This can go towards building an emergency fund to help with unexpected blunders, a regular savings account and/or retirement account. Make this a priority, even before you have paid your bills. You may need to establish a budget to see what percentage comfortably still allows your bills to be paid, but once you do, also think about automating that percentage to directly go into your saving account so you never miss it and it accumulating all the time. Also, if you’re contributing to a retirement or other investment account, consider increasing your contribution by 1% or more every year. It helps you reach your goals earlier, keep up with inflation and it’s likely you won’t even feel those extra few dollars deducted from your paycheck.
Ditch: Impulse buying
This is a tough one. We’re emotional creatures. We see things that we want; things we think will make us happy, things we think we need right now, and things to show off. We’re not judging you for what you spend your money on, but if you want to reach a higher financial calling, reigning yourself in from unnecessary purchases is a must. So yes, avoid those last-minute grabs near the register at Target. Maybe give Target a break for a while all together (Those well-lit and curated aisles have gotten the best of us to grab things that weren’t on our original list. lol). It’s easy to say that something is just $1, $5, $10 or $15, but when you calculate 20 impulse purchases like that over a week or a month it adds up. Think about what experience you could have funded or item you could have purchased with the money you spent on unnecessary things. An experience or item that is more in line with what you truly values. If you think you really need something, and this may work even better with online shopping, give yourself a day or two to think about the purchase. If after the 2-day embargo you still feel you need it, go ahead. However, the time might teach you that you can honestly do without it. Another rule of thumb is, if you can’t buy it twice, you probably can’t really afford it.
Keep: Live within your means & track spending
This will help counteract the impulse buying you need to ditch. Living within your means translates to doing the work to understand how much you earn in a month and adjusting your lifestyle (living arrangement, dining, entertainment, etc.) to fit within that economic bracket. It’s also about avoiding lifestyle creep. This can be that you think you’re bringing in more money and you elevate your spending or you associate with people who have the appearance of an expensive lifestyle and you spend to keep up or get a taste of what it feels like. Avoid financial missteps like this. Take your income and create a budget that will account for your fixed expenses, savings/paying off debt and if money left over, something for discretionary spending. To keep up with your budget, track everything you spend so you can account for what’s going where and prevent you from overspending in certain categories. This will take discipline, but it’ll be so worthwhile when you develop this habit to the point it just becomes second nature.
Ditch: Accumulating More Debt
We touched on this a little bit earlier with impulse buying, but taking it a step further, avoid making those types of purchases on credit. The more you purchase on credit, the more disciplined and financially stable you have to be in order to pay it off before you amass a figure that becomes crippling and too hard to pay down. Out of hand spending leads to debt and impedes you from reaching your financial goals. Carefully consider big purchases that you don’t have the on-hand cash to purchase. Ask yourself, if it’s a want, am I ready to pay myself back financially and how will I do it to keep on track with my goals? If you’re looking to accumulate “good debt”, as we say, for things like education or a home, just make sure to do your research to get the lowest interest rate you can and also be thinking long term how you can make payments as you go.
Keep: Pay more than monthly minimums
If you have credit cards, try aiming to pay more than the minimum to get rid of those balances sooner. The more you’re able to pay along the way will save you money in the long run. The longer you maintain debt, the more you are paying overtime because of the added interest. Also, if you’re able to consolidate your debts to get a lower monthly payment, take advantage of it. If not, always attack your debt that has the highest interest rate first.
Ditch: Not having goals for your money
Whether you’re a great saver with most of your money in cash or you’re trying to get financially stable, not having goals for your money is sabotaging your future. Setting goals for your money incentivizes you to make your money work better for you and to make concerted efforts to have better financial practices. When you have goals, it prepares you to then be able to consider short term and long term vehicles that will best help you reach them. Having goals encourages you to diversify your saving strategies and puts you in a position to have your money keep up with inflation if you choose to invest and take advantage of compound interest. Just with any other task, when you know why you’re doing it, you tend to be able to look at the problem at all angles and work more intently and efficiently to reach the end.
Keep: Talking to an Advisor to stay on track
A fiduciary advisor is the perfect addition to a healthy financial strategy. Saving and budgeting can be done on your own, but incorporating the knowledge and money management services from an advisor takes things up a notch and keeps you on track. An advisor should be able to help you plan for the future and readjust your financial strategies when you have life changes. If you’ve been investing, an advisor should also be able to help you by finding you the best investing/saving vehicle for the best return for your financial goals. Just as you would go to a physical trainer when working out alone isn’t enough, or going to a doctor when googling symptoms doesn’t provide the full picture, you want to do yourself the kind and practical favor of letting an advisor take a look at what you’re doing to point out any problems and prescribe solutions.
We hope you work to incorporate these practices into your financial strategy this year. As always, InvestEd is here as a resource to everyone and we are aiming to be the best fiduciary advisor in Baltimore. If you have questions about anything discussed here or are ready to have your own financial check-up we do free meetings Monday- Friday by phone or email. Here’s to you having great finances in 2020 and beyond!