Happy New Year! Have you made your new year’s resolutions yet. Here are the top 4 New year’s resolutions, according to one study.
- Exercise more
- Lose weight
- Save more and spend less
- The first 3 have to do with your physical health while the 4th one has to do with Financial Health. If you made it a priority to save more and spend less in 2020, here are some ideas to help you get in good financial health.
First of all in order to save more you have to look at your spending habits. You need to know what the heck you are spending your money on. So, try this. For one month write down everything you spend money on. Everything! If you stop at the convenience store for a soda, keep the receipt. This has to be done daily. Categorize your spending on a spreadsheet or simply keep a log on expenditures. You will be surprised on how much you are spending on un-necessary items.
Now we get to the “B” word, budget. Most people think of a budget as something that is so restrictive and doesn’t allow for any of the fun stuff. Nobody likes that term budget, so let’s call it something else. Let’s call it “Money Tracker Analysis”. That sounds cooler than budget.
An easy way to get started on a budget is use the 50/30/20 plan. Look at your after tax income, and consider allocating in this manner. 50% of your expenditures should be on “needs”, like mortgage or rent, groceries, gas, utilities and other bills. So in this category, all those items listed ,you have to have. You have to pay your mortgage for shelter, you have to buy groceries to live, and so on. Now 30% should be allocated to your wants. This is your fun stuff, like dining out or those new shoes you wanted or some electronic gadget. You don’t NEED these items but you want them. This type of plan will allow you to do that as long as you stay within the parameters.
Next, 20% should be allocated to savings. There are different types of savings goals. You should consider a cash reserve savings that would equal 3 to 6 months of expenses. Retirement savings is another goal. Look into your employer plan, if one is offered, and try to contribute at least enough to take advantage of any company match. Other types of savings goals could be down payment on a house, purchasing a car or college funding.
For example, let’s say a couple has household income of $100,000 per year after taxes. $50,000 will be allocated towards the needs, $30,000 will be allocated toward wants and $20,000 would be allocated toward savings.
Now you might find out after tracking your expenses that you have a lot in credit card debt. According to Nerd Wallet the average American household carries $16,061 in credit card debt. If you are an abuser of credit cards, you simply have to stop. You have to retrain your brain. You see by using cash to pay for things, it hurts. It’s psychological because your brain is actually seeing money disappear when you use cash. On the other hand when you use a credit card, there is no pain because after you swipe the card you still have the card it didn’t go away. So with cash there is pain with a card, no pain. But like they say, no pain no gain.
Use some of the 20% allocation to pay down on this debt, on top of what you normally pay.
Finally, here are some tips to try as you go along.
Consider setting up multiple savings accounts and give each a name, like Vacation, down payment for house, Christmas spending. If you set up multiple accounts and name them you will be less likely to tap into, say the Vacation savings.
Consider automating your savings. Once you set up your accounts and the amounts to be saved each month, set up an automatic transfer from your checking to those different accounts. By doing this you trick your brain by the “out of sight out mind” mentality.
If you have multiple credit cards and are trying to pay them off, consider starting with the lowest balance first and pay as much as you can on them while the others just pay the minimum. The idea here is your giving yourself small victories along the way and you will see a debt gone quicker. Yes, you could be paying more in interest in the long run, but the psychological feeling of a debt gone on a small balance gives you a sense of satisfaction and you will feel like you are making progress.
Look at all your subscriptions. These days people are subscribing to different services and apps for various reasons and it adds up. There are apps out there that can let you know, based on your email address, what services you are subscribed to. Or you can look at your credit card statement to get an idea. Then cancel all the unnecessary subscriptions. You’d be surprised how much money this could save you and you could use that “new found” money to pay down debt.
So, is all this going to be easy? No. But if you are serious about wanting to save more and spend less these exercises could go a long way in working towards your goal. It’s like going to the gym for the first time. At first it hurts. You are trying something new and your muscles hurt and it’ no fun. But after a while it becomes more like a habit and you start to see progress and you feel good about yourself.
So get started NOW, You can do this!
For more information watch this video!
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.