New Year, New (Financially-Savvy) You!
The start of a new year is an ideal time to reflect on your finances. Have you been spending too much, earning too little, or need help planning for your future? We’re here to help you navigate the year with confidence and financial know-how with six steps to creating a financial plan for 2020 and beyond.
Draft a Budget
We’re enthusiastic supporters of following a budget to keep your bills paid and your expenses transparent. When drafting your budget, keep in mind that it will be different for every person depending on lifestyle, debts, and income. A budget keeps you in control of your finances, should be updated regularly, and should be flexible for life’s surprises. Here are some tips to create a budget.
The key to following a budget once its created is tracking your day-to-day expenses. Whichever method works for you, do that. A financial tracker app, pen and paper, whatever it is, just write every single transaction down. This helps you see exactly where your money is spent and where you can cut costs, if needed.
Pro Tip: Try a “spending fast” for 30 days to see where you spend the most and where you can cut costs.
Consumer debt has reached 14 trillion dollars in the United States. Yikes! Some debts are investments—mortgages, student loans, business loans—but some weaken your financial health (medical bills, credit card debt, and payday loans). You can have a budget and track your expenses carefully, but you won’t be able to reach your goals if you’re carrying debts. Try the debt snowball method, where you pay off the smallest balance first and then move on to the next smallest and so on until all of your debts are paid off. Another effective method is to pay balances with the highest interest rates first.
Write Down Goals
This is your “why” and is important when creating your financial plan. Without having goals in mind, you’re less likely to make a budget, track expenses, and pay off debts. Take some time and ask yourself, “What do I want?” Maybe it’s a new car, your first home, college tuition, starting a family, or saving for retirement. All of these goals will need a solid financial plan to help guide you to your goal.
Build an Emergency Fund
The size of your emergency fund will depend on your lifestyle and your income. However, you should be able to cover a considerable expense. A good starting balance is $1,000. This is not the same as your savings account and will help cover costs such as a home or car repair. Once you’ve established $1,000 work to have 3-6 months’ worth of expenses saved up. Think of this as an emergency-emergency fund for if you lose your job or become ill or injured. It will cover your bills for a few months until you’re back on your feet.
Save, save, save!
So, you’ve paid off debts, built an emergency fund, and got clear on your goals. Great! Now is the time to be diligent, patient, and save like you’ve never saved before. Financial experts say that saving 20% of your income each month is ideal. If that number is too high, start where you can, whether it’s 1% or $1. Remember: every little bit adds up.
- Draft a Budget
- Track Your Expenses
- Eliminate Debt
- Write Down Goals
- Build an Emergency Fund
- Save, save, save!
Creating a financial plan will help with more than just your financial situation. It will also help you to get clear on your life goals and will teach you valuable lessons on spending and saving. Need help getting started? We’re happy to help—it’s kind of our thing.
Source: thebalance.com, nerdwallet.com