The New Year represents a fresh start and an opportunity to set financial goals for the year. Top resolutions concerning financial goals include creating a budget, establishing savings, and planning to get out of debt. Below are some tips in each area to help you achieve these financial goals.
Create A Budget
Creating a budget allows you to track, review, and modify where your money is going each month. If you do not know how to start, this Make a Budget (opens new window) worksheet from the Federal Trade Commission, helps you evaluate which expenses are flexible and which are fixed. This will give you an idea of how you are spending your money. After evaluating your expenses, then determine a method to allocate your spending.
One method is the 50-20-30 budget rule. Apply 50% of your take-home pay to needs, such as your mortgage or rent, utilities, groceries, and transportation; 20% to savings, investments, and debt payments; and no more than 30% to your wants or flexible spending, such as travel or entertainment. These are not exact percentages, and you can modify them to work for you.
The first step in building savings is to start, even if it is a small amount. At many credit unions you can open a savings account with as little as $5.00. To find a credit union in your area click here.
Put Your Savings on Autopilot
To avoid the temptation of overspending or splurging when you receive your paycheck, you can automate contributions to your savings account. Setting up automatic contributions will allow your savings to grow, without having to think about it. You can talk to your credit union about doing this. Also, many employers offer ways to have your pay automatically deposited into a savings account. Click here for more information on savings and investing.
Build an Emergency Fund
A solid emergency fund is perhaps one of the most important tools in developing financial security. If you currently do not have an emergency fund you are not alone. According to the Federal Reserve Bank’s 2020 Report (opens new window) on the Economic Well-Being of U.S. Households, close to 40% of Americans would struggle to come up with $400 to pay an unexpected bill. While it is recommended that you save six months of living expenses for financial necessity, don’t allow yourself to stress about building six months of expenses overnight. Instead, start off by building a “starter” emergency fund of $1,000. Then, continue to add consistent, small amounts to reach your larger goal. For more tips about preparing for the unexpected, click here.
Lower Credit Card Debt
In order to lower credit card debt, it is important to set personal limits, and don't go beyond them. Only charge items you know you can pay off each month. If you already carry a balance, pay more than the minimum payment (or the most you can afford) to bring down your principal balance. If you can’t pay off your balance every month, determine which of your cards have the highest interest rates and try to pay those off first. To better understand your current credit card statement, rate, and fees use this use this credit card statement tool, and for more tips on paying down credit cards click here.
If you are having trouble keeping track of payments and balances on your debts, you may want to consider consolidating them. Debt consolidation loans are typically used for unsecured debts, for example personal loans, credit cards, and student loans. Instead of dealing with multiple bills, you have the ability to manage one consolidated bill. For more information on Debt Consolidation click here.
You may be eligible to get a lower interest rate because of changes in the market or if your credit score has improved. By lowering your interest rate, you can lower your monthly payment. To start, check with your current lender to find out about refinancing options. That lender may want to keep your business and be willing to reduce or eliminate some of the typical refinancing fees. Next, comparison shop by comparing all the terms different lenders offer, particularly interest rates and fees. For more information and tips on refinancing click here.