Ah the New Year. It is the time for fresh starts—a clean slate that you can fill with plans and intentions, right? How many of you are adding financial resolutions into your New Year? Even those of you who are feeling positive about personal finances shouldn’t slack off—now is the perfect time to take stock of your finances and make definite goals for 2018. But if you haven’t (yet), you are not alone. Only one in four Americans (27%) say they will make a financial resolution this year, marking an all-time low according to data released from financial company Fidelity. But it is interesting to note the reason cited for this—people are feeling optimistic about their personal finances. Seems a little counter-intuitive, doesn’t it? Well it is. Even when you are feeling upbeat about your money, planning ahead is always a great idea. So if you haven’t done so yet, consider becoming a well intentioned money planner and make one (or a few) financial resolutions so that 2019 becomes an ever stronger fiscal year.
Research shows that those Americans making financial intentions this year clearly understand the top principles for financial well being. According to a poll conducted by Principal Financial, the top financial goals for 2018 ranked as follows: save more money each month (40%), pay off credit card debt (32%), reduce spending (31%), save for retirement (27%), and build an emergency fund (21%). But understanding top money priorities and creating a plan to get there are often where good intentions fall short. So let’s take a look at each of these commendable financial resolutions and see if there are ways to help secure financial success in 2018.
Save More Money/Reduce Spending
Obviously these two ideas are related. However, the key to success here is to first understand where you money is going in order to make adjustments that allow you to save. So start with a budget. You can keep it simple, but make certain you include your monthly expenditures (don’t forget the lattes) and your monthly income. See if there are memberships, subscriptions, or things that you are paying for but not using. Then shut them down. Another idea is to sock away any raises or bonuses, instead of spending the extra cash willy nilly. For instance, if you receive a raise that raises each paycheck by $40—immediately move that $40 into savings from your checking account to save $1040 in one year, quite an accomplishment without too much work. Try to cut down or eliminate eating at restaurants and take out—a huge savings, even more so if you pack and bring your lunch to work daily. If you feel that you have really reduced your expenses but still can’t save any cash, you might want to consider looking for a job that pays more. Switching jobs can often raise your salary by a much more significant rate then receiving annual raises. But if you love your job, perhaps you can generate more income by taking on a part-time job. Or do some freelance work if you have a certain skill set that makes sense for that track. Maybe you have a spare room in your house and can take on a roommate. Another idea is to barter and avoid spending altogether—perhaps you can trade babysitting with automotive care—think about the people in your sphere and how you can build a barter community. There are all sorts of creative ways to generate more income so that you can save more money.
Pay Off Credit Card Debt
According to The Balance.com, the average American household has about $8300 in credit card debt (NerdWallet puts that total nearer to $15,000). And Creditcards.com states the average credit card rate is 16.51 percent. Yikes, the interest charges on credit card debt of those amounts can make a serious dent on anyone’s financial picture. So the first thing to do is make certain you are getting the best credit card rate possible. Contact our State ECU member representatives to find out about State ECU’s competitive, low rate Visa credit cards.
For those of you with a number of credit cards, a good tactic is to tackle highest debt first—because it is costing you the most. For instance if you have $4,300 on a card with an annual rate of 10% versus $3,200 on a card with a rate of 16% annually, you would make higher payments to the card with a higher rate, saving you money in the long run. Another option that few people try is to negotiate with lenders, especially if you have been a loyal customer. Shaving just a few percentage points from your rate can save you a large amount of money as you pay down balances.
Save for Retirement
According to a recent survey from GoBankingRates.com, Americans have less than $10,000 saved for retirement, with one in three having nothing saved. This is not a way to secure a comfortable retirement! Without independent savings, you will have no way to ensure a lifestyle to which you are accustomed, and could in fact see a drastic drop in your personal economic picture. Build a nest egg immediately, or boost it if you have one established.
In 2018, workers under 50 can contribute up to $18,500 per year to a 401(k) and $5,500 into a traditional IRA. Those over 50 are allowed a catch-up scenario with limits of $24,500 and $6,500 respectively. These options also reduce your annual salary, thus reducing your taxes. A win win. For those of you with an employee match on an employee-sponsored retirement fund, take advantage of this free money. Don’t wait!
It is critical to build up your retirement nest egg during your working years so that you have the time to let your money grow. One word of caution—do your homework and make certain that you understand the expenses associated with your retirement accounts, since high expense ratios can really eat into your nest egg.
Build an Emergency Fund
According to the most recent Emergency Fund survey by GoBankingRates.com, more than half of Americans have less than $1,000 available in savings to cover an emergency. Emergency money is critical because unexpected challenges arise—companies lay off employees, cars break down, and people get sick. Without adequate savings, these challenges all become part of your debt (which you are already trying to decrease.) But what is even more shocking is that a growing percentage of Americans have absolutely no emergency savings: the same survey found that 39% of Americans have $0 in savings, up from 34% in 2016. Do not be unprepared! Aim for an emergency fund that has enough cash to get you through at least three months of living—six month’s worth of funding is even better. Suggestions have been previously noted about ways to cut costs and save, but shifting your way of thinking about money is also important. See an emergency fund as a way to ensure your financial stability, and get it funded (at least partially) before socking money into retirement. It is that important. Find ways to encourage yourself and keep on track. Perhaps you can write your emergency fund goal on stickers and place them on your debit and credit cards so that every time to go to make a purchase, you can evaluable the necessity of the cost.
On a final note, try to see the New Year and financial resolutions as an opportunity to get empowered about your finances. By clearing writing out your goals and plans (and budget), you can begin to feel hopeful about your future and have some clear ideas about how to get there.
Here are a few apps to check out that may help you achieve your savings goals:
State ECU app—this is a free and convenient way to keep atop your State ECU finances. Transfer funds, check your balances, pay bills—all from your web-enabled device. Fast, secure, and easy to use.
Mint—a free app that creates a personalized budget for you based on your financial data. It notifies you of unusual charges and informs you how to reduce the money you spend on your monthly bills and fees. It also shows your credit score. Get Mint app and let it do the dirty work for you.
Mvelopes—app that uses an envelopes system to set up a monthly financial plan based on your income. Monthly fee of $4.
YNAB (You Need a Budget)—this budgeting app allows you to create a budget based on a four-step plan: use last month’s income, monitor infrequent expenses, make every dollar work for you, and prevent overspending. 34-day free trial, then it is $50 per year.