5 Ways to Become Fiscally Fit in the New Year
The New Year brings new hopes and dreams for a better you. We are looking to enhance our lives in many ways. We are thinking about better health & fitness, becoming more organized and improving our professional selves. Many of us also strive to become more fiscally fit.There are many ways you can work toward your financial goals. You can start small and build your financial foundation along the way. Here are 5 ways to get started.
Understand Your Expenses OR Assess Your Cash Flow Needs
What do you spend your money on? Do you track your expenses? Many of us use a bill pay service for our monthly bills. Looking at this summary will give you a good idea of your consistent monthly bills. Next, you need to add in the annual or semi-annual bills to round out your annual expenses. Examples of these bills include life insurance, umbrella insurance, flood insurance, long-term care insurance, homeowners’ associations, etc. Charitable donations can occur randomly and can also be tracked. Lastly, some people pay estimated taxes throughout the year and those payments are due in January, April, June and September.
Create and Understand Your Budget
January is a great time to look at your budget. Throughout the month, you will receive year-end statements for most of your banking, savings, investment and debt accounts. Some of these statements will have a year-end summary that will categorize your contributions, withdrawals and spending. Credit card statements, in particular, tend to give a detailed statement of everything you charged throughout the year. This is a great resource to see what you are spending your money on and to determine how much is going towards “needs” versus “wants”. Checking and Savings statements will sometimes give you a section that shows deposits and withdrawals throughout the year. Investment statements will also show year-to-date contributions and withdrawals. So, what should you do? Follow the money trail. It will show you how you are spending your money. Use this information to set a realistic budget for the upcoming year. This may also be a good time to reassess your monthly and annual subscriptions – those small fees add up quickly.
Focus on Decreasing Your Debt
Credit card and student loan debt are huge concerns in our country. Student debt is sometimes crippling to the young adults coming out of college. Many will pay the required minimum and have this debt follow them for years and years and years! Some even have difficulty qualifying for a mortgage later due to the high level of student loan debt. An alternative idea is for these new workers to have someone help them develop a strategy to increase their payments and tackle the balance over a shorter period of time. The goal can be three to five years, depending on how much you can afford and how much willpower you have. Short-term sacrifice for long-term gain.
During the holiday season, credit cards are used more excessively than normal. Then, we have that “Oh crap” moment when the bill arrives in January. While we are still feeling that sting, set a gifting budget for next year. If you have a large credit card balance that you can’t pay off in one month, come up with a realistic payment plan to pay the balance off as quickly as possible. Never pay the minimum payment only, this is a recipe for disaster. If you must set up a payment plan, be tough on yourself. Put the credit card in a home safe and don’t use it again until you can pay the balance off.
Understand Your Credit Report
Your credit report and credit score are very important to your financial life. Your credit score impacts many parts of your life. It could determine whether or not you are able to borrow as well as the interest rate you will pay for the loan. Your credit score can also help or hinder you in renting an apartment and, in some cases, how much you pay for car insurance. Since it has such a ripple effect throughout your life, you need to monitor and protect your credit report.
You are entitled to one free credit report every 12 months from each of the three nationwide credit reporting companies. You may call 1-877-322-8228 to request your free report or order it online at www.annualcreditreport.com.
Once you have your report, review it and contact the credit bureau if you find any mistakes. Next, look for ways to improve your credit score. One of the best suggestions here is to pay your bills in full and on time. Paying your bills past the due date incurs late fees and will also go against your credit score.
Pay Yourself First
The easiest way to take care of your future financial life is to save now. Many of us have our bills on auto pay, why not put yourself on auto pay? There are three buckets that you should split this money into: emergency fund, rainy day and retirement. Retirement may be the easiest of the three buckets if your employer offers a retirement plan. Once you enroll for the plan, your contribution is taken from your paycheck, in some cases pre-tax, and put directly into your retirement plan. You may have to set up the other two buckets. Open two separate savings accounts and name them for your savings goal. Once you determine how much should go into each bucket, select a date for this to happen automatically from your checking account. The emergency fund is vital to you and your family. It should have at least three to six months of your expenses available in this bucket. Since health issues, layoffs, death and many other “emergencies” usually happen when they are least expected, you never know when you will need to dip into this account. Having an emergency fund can give you the time and funding you need to get back on your feet. A rainy day is intended for smaller expenses. Some ideas that come to mind are travel, car repairs, replacing a washer machine, pet surgery, summer camp, braces for the kids, or any other short-term, unexpected cost.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.