Most people would agree that discussing your finances can be extremely challenging. The biggest hurdle that plagues us…getting started. Just like with anything else, when it comes to beginning your journey to financial glory, you must set a goal. Once the goal is set, now it’s time to take action.
Of course, there is no “one-size fits all” type of approach, and no matter where you are in your life, you may need to address one or all of the following as it applies to your financial game plan:
(1) Create a spending plan (also known as the budget).
How much do you earn? How much do you spend? How much are your bills each month? How much do you save/invest? Try your best to stick to a spending plan each month and have someone hold you accountable when you do not stick to it. Please do not beat yourself up if you don’t stick to it each month because it’s hard to change your spending habits overnight. Grade yourself on a 3-month basis because if you can manage this over an extended period of time, then guess what, you’ve created a brand new habit! And if the conventional way of “budgeting” doesn’t work for you, consider an alternate strategy, like the 50/20/30 plan.
(2) Pay off credit card debt.
We all know that credit card companies make money off the interest they charge on your account. Here are a couple of tips: 1) Stop spending money that you don’t have; 2) Pay off the card with the highest interest rate; 3) Consider paying off the smaller balance (this will give you the emotional jolt to continue to fight against the larger balance) 4) If possible, pay more than the minimum payment each month. 5) Try the debt-snowball technique
(3) Build an emergency fund.
Make sure to have between 3-6 months worth of living expenses saved at all times. Or for those over-achievers, considering having 9 months to 1 year’s worth. This may be a challenge, but you will never be upset with yourself for saving money when an actual emergency pops up.
(4) Determine personal insurance needs.
Many people may be uninsured or under-insured and this could prove detrimental to your overall financial game plan if the unexpected happens. Consider your situation and see if life insurance and disability income insurance provided by your employer will sufficiently cover your needs. If need be, consider owning personal insurance outside of what is offered through your job. Please note that if you change jobs – or lose your job – typically, you will lose those employer-provided benefits, because the employer is paying the premiums, thus you don’t “own” the policy. Personal policies can help ensure that you’re protected, no matter where you work or what happens with your job situation. Also, your age and health play a HUGE role in how an insurance company will set the price of their policy, so please keep that in mind.
(5) Begin/review your retirement plan.
We all work extremely hard, but what do we have to show for all our years of service? Many companies are doing away with pension plans, thus the responsibility of putting money away for retirement falls on our shoulders. Take advantage of your employer-sponsored retirement plans like a 401(k) or 403(b) because these plans allow you to invest monies tax-deferred. A nice advantage of these plans is that they take money out of your check before you get paid. There are also ways to save for retirement outside of an employer-sponsored plan. Consider opening an IRA (traditional or Roth) or a brokerage account. An annuity or life insurance contract could also be an option. If you decide to save for retirement outside of or in addition to your employer sponsored plan consult with a financial professional as you’ll need to be aware of contribution limits, tax treatment, and how the accounts work.