Last week, Forbes reported 72% of Americans are stressed about money (McGrady, Vanessa “72% Are Financially Stressed…” Forbes Oct 2016). This feeling is all too common among many Americans, but there is hope! I will outline four simple steps to empower you to take better control of your finances right now.
Make a budget & stick to it
We tend to (mistakenly) think that we have a pretty good idea about our expenses. But unless you are actually tracking, you don’t actually know. Small things can add up quickly. Going out to lunch with co-workers, having Starbucks once a week or getting your hair or nails done…all these little things can quickly add up to over $1100 per year.
Learn to tell yourself “no”. It can be difficult because we work hard for our money and we want to enjoy it. However, we have to exercise delayed gratification. By foregoing the small pleasures now, you will see large benefits in the future. Focus on the future. Set goals specific financial goals (i.e. have all credit cards paid off in eight months). Ensure the decisions you are making today are aligned with where you want to be in the tomorrow.
Save every month starting right now
We have all heard the expressions “pay yourself first.” This is so true! Treat your saving like any other bill. If you plan to save from what’s left over, by the time you think about it there will be nothing left over! Set up an automatic transfer so you have one less thing to think about.
No amount is too small to save. By skipping some of those “little things” discussed above, you can find something to save. Work your way up to 15% per month. Divide your saving into categories. Use certain accounts for short term goals (like a Christmas fund) and other accounts for long term goals (such as retirement). Use the 401(k) or IRA at work as another way to save automatically. If your employer offers a matching contribution, take advantage of it! It’s free money!!!
Establishing an emergency fund can also be a life saver in the future. Unexpected expenses can happen at any time. If your car breaks down or you are temporarily out of work, having a little cashed stashed away can make a lot of difference! Every penny counts and the most important thing is to start right now!
Well…. you don’t have to avoid this completely, but you should definitely use it sparingly. If you are using credit to pay for monthly necessities, like groceries, you need to look at your budget and make some cuts.
Before using credit, it’s important to think about the total cost of purchase. For example, you charge $400 for groceries and pay it off over two months at 25% APR. If you do this every month, you will pay $150 per year in interest. $150 may not seem like a lot, but I can think of better ways to spend it!
When you do use credit, be sure to read all the fine print on the financing agreement. This is especially true of “interest free” financing. Often time, special interest offers have high interest rate clauses which are triggered if payments are missed or if the entire balance is not paid off at the end of the special financing period.
Be informed and proactive
The most important thing to remember is to be informed! As long as we have enough money to pay all the bills, it’s easy to stick your head in the sand and think that everything is alright. However, the goal is not to just pay the bills. You should be actively managing your money to maximize your earnings.
Nowadays, it’s pretty easy to be informed. You can check your bank balance 24/7 via your bank’s mobile app or website. The same is true of checking on the balance of bills or debt. Even if you are in a great place financially, periodically reassess your budget, savings and investment strategy. Be proactive. Don’t wait until there is a problem to get informed.
Remember, failing to plan is planning to fail!!