SIMPLE STEPS TO STRONGER FINANCES

4 SIMPLE STEPS TO STRONGER FINANCES

It may seem like there is a lot to personal finance. And in one sense there is. There are thousands of different approaches to personal finance. And this can get overwhelming. It may seem so overwhelming that you feel paralyzed at square one. But it doesn’t have to be. There are a handful of things that are critical in personal finance. All the rest is splitting hairs. So go through each of these items one at a time and make an improvement in each area. By the time you’re done, your finances will be on a stronger footing all around.

1. Budget

Unlike the rest of the items on this list, you either have a budget that works, you have a budget that doesn’t work, or you don’t have a budget at all. If you don’t have a budget, make one.

If you have a budget that works, just be sure that your budget includes all your long-term goals. Are you budgeting for a replacement vehicle? What about house and car repairs? And once a year insurance and tax payments? If so, great! Move on to the next step.

If your budget just isn’t working, figure out why. Where is it falling short? Is it unrealistic? Are you budgeting for more income than you actually bring home? Or are you under-budgeting for certain categories? If so, you may need to go back in and change some of the numbers. Trim the fat. Or are you simply having a hard time sticking to your budget? Perhaps you’d be better off strictly spending with cash. If so, consider the envelope budget.

2. Save an Emergency Fund

If you haven’t been budgeting for and building an emergency fund, start now. If you need to, set up a separate savings account (make sure there are no account minimums and maintenance fees). Just start saving something towards emergencies. Remember, something is better than nothing.

If you already have an emergency fund started, work your way towards $1,000. If you’ve had trouble getting there or staying there, increase the amount you put in each month. Also evaluate what you are considering ’emergencies.’ Things that you should have been able to plan for are not emergencies. Things that you can live without are not emergencies. Only tap your fund for true emergencies.

If you’ve got a solid emergency fund in place, you’re still not off the hook! Work towards 6 months of necessary expenses in a separate fund to put yourself in a better place for losing an income.

3. Pay Off Debt

Most debt is simply bad. Arguably some debt might be ‘good’ or OK, such as a low-interest car loan or your mortgage. That’s for you to decide. Tackle any other debt with a vengeance. If you’re making minimum payments, pay more. If you’re making more than minimum payments, still pay more! Pick up a side hustle, or find something you can cut from somewhere else in your budget. Sell unnecessary stuff! Just get rid of your debt. And if it helps, apply a debt payoff strategy such as the ‘avalanche’ or ‘snowball’ method.

4. Save For Retirement

In all likelihood, one day you’re not going to want to work or be able to work anymore. Don’t count on other people to take care of you. Start saving yesterday. Again, something is better than nothing. If you haven’t started a retirement fund, start one now! If your employer offers a 401(k), sign up. They make it easy. And make sure you contribute at least enough to get whatever match they offer.

If your job doesn’t come with a 401(k), start a Roth IRA and start contributing something. I often recommend Vanguard because of their low fees, but Vanguard does have an account minimum and can be intimidating with all the options. If you check out Vanguard and decide it’s not for you, Betterment offers an extremely user-friendly system with no account minimum, and fees only slightly higher than Vanguard (and still way lower than industry average). You would definitely not be going wrong by taking this route instead.

If you already have a retirement fund in place, make sure you’re contributing enough. Most people aren’t. Unless you’re older than 50, don’t count on social security being in place when you retire. For a good retirement forecast, check out Vanguard’s calculator. If you’re not saving enough, figure out how to save more!