These steps can help you gain control of your financial reality
Do you ever feel like your finances just aren’t running on all cylinders? Setting definitive financial goals will help you stay on track, weather unexpected expenses, and gain peace of mind for your later years.
Today, I’d like to offer six goals that can help you get on track – and stay there – so you can own your financial future.
Live Within Your Means
We all know that we should live within our means, but it can be easier said than done. This is especially true when wages are stagnant, yet prices for everything from food to housing to cars continue to rise. Seventy-eight percent of American workers live paycheck to paycheck; of those, three in four are in debt, and one in four have no savings. Walking that close to the financial edge means one unexpected expense, something as common as a broken-down vehicle, could become a personal financial crisis.
So, how do you live within your means and avoid these potential crises? Here are four tips to guide you:
- · Know exactly how much money you’ll have, after taxes, to pay for your lifestyle.
- · Review all your expenses. You may be surprised at just how much money you’re wasting on things like eating out, gym memberships, cable, and online monthly subscriptions.
- · Come up with a realistic budget that you can stick to. Your ultimate goal, of course, is to spend less than what you earn.
- · Find areas where you can change your spending habits. For instance, save up for that dream vacation (rather than putting it on credit cards), buy an older model car, or live in a more modest home.
To make peace with your new spending values, avoid competitiveness and comparison with your friends and family. Instead, focus on your long-term goal of financial security. In the end, this will provide you with much greater value than keeping up with the Joneses ever will. This isn’t always easy, but it is always worth it.
Build an Emergency Fund
Having an emergency fund is a critical step when it comes to your overall financial health. Before paying off any significant debts, you should work toward establishing an emergency savings fund. This fund is your cushion for unforeseen expenses like a health issue, a needed big-ticket item, or other unexpected emergencies.
To start, set your sights on saving the equivalent of three to six months of your living expenses (preferably in a high-yield online savings account) earmarked for emergencies only. Once you have a nice cushion of emergency funds, you can begin paying off consumer debts.
Ideally, you want to be saving for retirement in retirement accounts, such as a 401(k) or Roth IRA, at the same time as building your emergency fund. However, if you’re only able to do one at a time, build your emergency fund first.
Pay Down Debt
If you’re working toward healthier finances overall, paying off debt is an important goal. There are many ways to approach paying off debt, so do some research and choose the path that’s right for you. Helpful steps include consolidating debts to a fixed payment with a fixed term, always paying more than the minimum required payment, and paying off your most expensive or highest-interest debt first.
It takes discipline to pay down debts, but keep your long-term goals in mind: wouldn’t it be nice to retire debt-free?
Maintain Good Credit
A strong credit score is integral to your financial health. Unfortunately, 30 percent of Americans have a credit score under 600, which is considered fair or poor. Good credit gets you better rates on mortgages, credit cards, and lines of credit.
To build and maintain strong credit, you need to be disciplined about money: don’t carry large balances on your credit cards, pay off your bills on time, and don’t open more credit accounts than you need. Make it your goal to pay your credit cards off in full every month. If you aren’t able to do that just yet, work toward always paying more than the minimum monthly payment.
It’s also a good idea to keep old credit accounts open even if you aren’t using them, as the longevity of your credit history is vital in building a strong credit score, too. Set a goal to get up to a credit score of 700 before applying for a major loan. Monitor your credit score by getting a free copy of your credit report every 12 months from each credit reporting company, such as this one. You can also open a free credit monitoring account to receive alerts when there is an essential change in your reports.
Maximize Your 401(k) Contributions
Taking advantage of employer-match 401(k) contributions is one of the easiest and most beneficial ways to save for retirement. Approximately 75% of companies offering a 401(k) savings plan also offer a matching program, but one in five participants do not invest fully in order to unlock the employer match option. Not maxing out your contributions is, essentially, like leaving free money on the table.
If you find it difficult to save money for retirement, set up an auto-deposit into your 401(k) so that you’re investing in your retirement every paycheck without having to take proactive steps each month. If your employer’s match is 50 cents to a dollar for every dollar you contribute up to 6% of your compensation, you must contribute at least 6% of your compensation to get the full matching amount.
If you can save more, consider making contributions to Roth IRA or IRA accounts. Look into maxing out all retirement savings plans annually and start as soon as you can. If you are getting a later start, there are catch-up IRA contributions available, too, if you are age 50 or older.
Create an Estate Plan
If you have any financial assets that you want to pass on to your loved ones when you die, you should have an estate plan, including a will. Your will is a legal document that ensures that your money, property, and personal belongings will be distributed as you wish after your death. The law doesn’t require that you have a will, but your resident state will divide your property based on state laws if you die without one. If you want to leave property to someone outside of your family, like a friend or a charity, you will need a will. You also need a will if you want to prevent someone from inheriting some of your assets.
SEE ALSO: How to Handle Debts in an Estate
Additionally, as you work with an estate attorney to draft your will, this attorney can help you prepare a power of attorney and health care directive so you can name the right people to make financial and medical decisions on your behalf if you become unable to do so yourself. Writing up an end-of-life letter of intent to detail your wishes for end-of-life care and funeral arrangements can also bring peace of mind to you and your family.
No matter where you are in your life, it’s never too late to start setting financial goals for yourself. Maintaining a focus on these goals can sometimes be difficult, but staying on track to hit them will lead to long-term financial health and peace of mind for you and your family.
If you’d like to do a self-check with your finances, I invite you to purchase my book, Own Your Future. In it, I give you the tools and education to think properly about your money and go into greater detail on each of the elements that make up a financial plan that leads to a happy and financially secure retirement. Don’t wait… today is the best day to start on your path to financial independence!