Happy New Year!
At the start of every year, we face the challenge of setting goals to get our life in order. These goals cover everything from faith, family, fitness, and the one we typically gravitate toward is getting our finances in order. This year you can make that goal a reality by incorporating the following:
Be Committed. The first and most crucial step to getting your finances in order is to examine your attitude about money and to accept responsibility for changing the way you make financial decisions. Now is an excellent opportunity for you to be honest about your relationship with money. You may want to write down your feelings and findings, and assess your strengths and the areas where you need to improve financially. Also, identify at least one benefit you hope to gain by changing the way you manage your money. For example, getting your finances in order can lead to less stress and more peace in your life.
Make a budget. Take a long, hard look at how you’re spending and managing your money. Creating a budget every month is the foundation to help you gain control of your finances. Also, it helps improve your spending habits and can be used to track and avoid incurring additional debt. Furthermore, a budget will give you an accurate picture of the amount of money you will have and need for the future.
There are plenty of online apps and spreadsheets to help assist you in creating a budget. If you’re uncomfortable using technology, then use a pen and notepad to create a budget. You should select a budgeting tool that works with your routine and personality because if you begin by using a complicated one, you could quickly and easily become overwhelmed.
Focus on using cash versus credit. Paying with cash or using a debit card is essential to getting your finances in order because you put a limit on yourself. When the money is gone, it’s gone! Research has shown that we spend 15 percent more when we pay with a credit card as opposed to using cash. To avoid making impulse purchases, leave your credit cards at home.
Set short-, mid-, and long-term goals. Achieving your financial goals will differ in length and time, so it’s important each goal have a specific purpose, a dollar amount that it will cost, and a realistic target date to achieve that goal.
Short-term goals are priorities that can be achieved within two years, such as planning for a vacation, a wedding, or saving for a car down payment.
Mid-term goals can be achieved in two to five years. Some examples include saving for a down payment on a house or paying off a sizable student loan.
Long-term goals are priorities that most often take over five years to achieve, such as saving for a college education or retirement.
Also, it’s important to set goals that are attainable and reward your hard work as you achieve each milestone. Create a list of needs and wants to help you prioritize your financial goals, and using a budget can help you track your progress.
Start an Emergency Savings Fund. Unforeseen events happen all the time, and nothing ruins your finances quicker than debt from an illness, loss of a job, or an emergency. You can keep a minor financial setback from turning into a major crisis when you prepare for the unexpected by having an emergency savings fund.
Consider putting money into a savings or money market account, where you have access to it when you need it, without penalty. It's best if you initially put away one to three months of living expenses; after paying down your debt, increase your savings to nine to twelve months of living expenses, or to an amount that is tailored to your unique life circumstances.
Review and pay down your debt. Freedom from debt is achievable; however, the first step in regaining control is to take an honest look at your current financial obligations and get copies of your free credit reports at www.annualcreditreport.com.
There are several different approaches to paying down debt:
Pay the lowest value balance first
Pay the highest interest debt first
Consolidate your debt
Pay more than the minimum amount due
Cut spending elsewhere and use the surplus towards the debt
Choose one or use a combination of approaches to pay down your debt. Paying extra above the minimum due amount is the key to help you eliminate your debt faster.
Start -or continue to- invest for retirement. If your employer offers a workplace retirement plan, take advantage of the ‘free” matching dollars they provide as a participant in the plan. Also, review your current portfolio fund lineup, including performance and fees to see if you’re utilizing the best options available to you.
Familiarize yourself with the SECURE Act. Also known as the Setting Every Community Up for Retirement Act of 2019, which became law as of December 20, 2019. The SECURE Act makes sweeping changes to IRAs and 401(k) plans, and it implements new rules on the way beneficiaries will receive money from inherited retirement accounts.
Have an accountability partner. It will be much easier for you to stay focused and on track when you get a family member, friend, or co-worker to help hold you accountable. Also, asking them to participate with you in getting their finances in order will keep you motivated because you’ll be working as a team.
Be Patient. We adopt certain patterns about managing our finances because someone has taught them to us directly, or by example. Instead of mindlessly following the example of others, seek God’s will for your life and commit yourself to do it. If you want to get your finances in order, ask God to give you a vision for your life-He will! And when He does, pour yourself into it.
Just like when training to run a marathon, reaching your goal of getting your finances in order will take passion, energy, focus, work, and time. However, with a few changes now- next year, you will be able to say, “I did it!”
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Livia Kelly is the author of UNMARRIED and DEBT-FREE. She provides sound and useful guidance about budgeting, paying off debt, and achieving financial success on your own. Click on the HOME button at the top of this page to learn more.