Many people make resolutions each year to get their finances on track. But we also know that many people aren’t able to follow through with those resolutions, not because they aren’t determined, but because they don’t have a good plan in place to reach that goal. Here are several ways to get your finances in order and implement a plan to reach your financial goals.
What is your Financial Planning Situation?
Do you have a good idea of the money that you have coming in each month? And how much money you are paying out for expenses? If you don’t know the answers to these questions, you are not alone. A Gallup poll shows that only 33 percent of Americans prepare a detailed household budget, while even less—around 30 percent—actually have a long-term financial plan with investing goals in place. However, this is exactly where you should start if you want to get a grip on your current financial situation. So, if you don’t have a budget, you can click here to download a free printable budget to get you started!
How to talk to your spouse about money
Getting a handle on your current financial situation is going to involve doing something that is very uncomfortable to do—talk to your spouse about money! Financial stress can be a huge weight on a relationship, and talking about it is not easy. However, there is a right way to approach talking about money with your spouse or significant other, and there is a wrong way. Make sure that you avoid the pitfalls of talking about finances with your partner so that you can have a productive conversation that helps you improve your financial situation—and doesn’t lead to you to divorce court! Before starting this discussion, I would definitely suggest that you read this article about When Not to Talk to Your Spouse About Finances so you can make that conversation as productive as possible.
Here are also a few ideas about how to give your finances a health check and how to reduce the stress in your life by getting a budget in place. Ready to get into a better financial situation? Here is a great infographic from Chime Bank that gives a great summary of ways to get your financial resolutions in order this year. Chime offers a mobile banking feature, which can be extremely helpful for managing your money. You can find more about it here.
Save Money, Live Better
Do you save money each and every month? If not, you need to start. How much should you save? How often should you save? What type of savings account do you need? Perhaps you’d like to save, but don’t even know where to start. We’re going to break it down for you, and make it easy.
There are several different savings challenges that you can follow. Some lay out daily savings amounts and are some weekly, in varying amounts. It really doesn’t matter which one you choose, but getting into the savings habit is what is important. If you don’t have a lot of extra cash each month, you may want to start with saving your extra change and then work your way to larger amounts. These daily and weekly challenges are great to save up money short term for a vacation, Christmas, home improvements, or just to build up an emergency fund.
Related article: Learn to pay yourself when you get paid with the Payday Savings Plan
How much should you save each month? Well, there is no correct answer here. The important thing is to get in the habit of saving on a regular basis. Some factors that you may want to consider when deciding how much to set aside are:
- How much do I need to cover at least 3 months of living expenses (emergency fund)?
- Do I have any short-term items that I need to save for? (vacation, new car, down payment for a home purchase)
- What long-term items should I save for? (retirement, children’s college education)
Regardless of what your savings goals might be, there are some plans to get you on the right path. If you want to save more, you can always add in extra, but these Savings Challenges a good place to start:
Save in 2019 Save $2019
Weekly Savings Challenge Save $1378
Every Penny Counts: 365 Day Savings Challenge Save $667.95
Save for Retirement
Besides just building up a savings account for emergency or other expenses in life, you will want to make sure that you are saving for retirement. There are several ways to do this:
IRA—Individual Retirement Account
Set aside money before tax into the investments that you choose. You will get to deduct contributions up to a specified limit on your current-year taxes.
Set aside after-tax money into the investments that you choose. You will not be allowed to deduct current contributions made to a Roth IRA, however, the growth of the wealth accumulated in a Roth IRA is tax-free. So when you withdraw it, you won’t owe taxes on the growth.
This is an employer sponsored retirement vehicle. You have limited choices in the stocks or mutual funds that it can be invested in. Money contributed is typically pre-tax, and often, matched by your employer up to a certain percentage. For example, if you contribute two percent, your employer may match that contribution. So, you are getting the advantage of saving four percent of your income and only having to contribute two percent of it yourself.
This type of IRA is for self-employed individuals. These basically function as regular IRAs, but can also provide retirement accounts for employers of self-employed individuals.
Get a return of premium life insurance policy
So what does life insurance have to do with savings? Well, a return of premium life insurance policy gives you piece of mind for your family as term life insurance, but if you don’t need to use the benefit, you will receive your premiums back at the end of the insurance term. So, this insurance basically functions like a savings account. In a nutshell, this type of insurance is term insurance and a savings account all rolled into one. It is not quite as inexpensive as a typical term insurance policy, however, it is not as expensive as a whole life policy either.
A standard term insurance policy only covers you for the term of the policy. If you don’t need it during that term, then the policy expires and you don’t receive any benefit, nor do you get your premiums back. A whole life policy can be relatively expensive on a monthly basis, but does provide an insurance benefit if used, but if not, there is a cash value.
Pay Down Debt
One of the best ways to create a secure financial future is to pay down your existing debt. Whether it be credit cards, personal loans, or a mortgage, getting those items paid down and off will free up your finances. If you have several types of debts, you may not know where to start to get them paid down. Here are some guidelines to help you decide which debts to tackle first:
- Credit cards—most likely, you should start by
paying off your credit cards first.
Credit cards are revolving debt, meaning that they compound interest
daily. So if you are only making minimum
payments each month, most of your payment is only going toward paying off the
interest that accrued that month. If you
have multiple credit cards, here is a system to figure out which one to pay off
- Look for the credit cards with the highest interest rates. You want to get these paid down quickly because the higher the interest rate, the less your payment is working toward getting you debt free.
- Which credit cards have the lowest balances and the highest payments? If you have a credit card with a low balance, consider getting it paid off quickly. For example, the minimum payment may be the same for a credit card that has a $100 balance or a $1000 balance—let’s say, $25. Get the $100 balance card paid off first, then put the money that you would normally have paid to that card onto the payment of the next credit card that you want to pay off. So once you have the $100 credit card paid off, take the $25 payment that you were making on it toward the $1000 balance card. Instead of just paying the minimum payment of $25 on that credit card, now you are paying $50 (or more if you can afford it) to get the principle balance paid down quicker.
- Personal loan—if you have a personal loan for an auto or something similar, you can get that paid down after your credit card debt. Typically, these types of personal loans are a fixed interest rate, on a fixed term, with simple interest, meaning that the interest compounds monthly. Because these types of loans are a fixed rate and term, the compounding of the interest is limited, and already accounted for within your monthly payment. However, if you pay it off early, you can cut down on some of the interest that you will have to pay. So once your credit cards are paid off, you can easily put more money toward getting your car or other personal debt paid off.
- Mortgage loans—a mortgage loan is probably the largest debt that you have and may seem like the best starting point. However, your mortgage loan is also probably the lowest interest rate that you are paying on and it gives you a tax deduction—of course, talk with your tax professional about your exact tax situation to see what you may qualify for. While you will want to start with other debts to actually pay off first, you can make extra payments toward principle each month to reduce the overall term of your mortgage. Here is a mortgage calculator to help you figure out how many years you can save by making extra principle payments.