Financial security is the focus for 2020. If your spending and debt is out of control, it may be time to get back to the basics of money management.
Not all of these need to be started at the same time. But even just working on a couple of things can get you ahead this year. If you start now, you’ll be in better financial position by the end of this next year.
Create a budget
If you haven’t started a budget yet, this year is the time to do it. Start the new decade getting by more intimate with your money. Start to really know where each dollar you make is going.
There’s so many easy ways to budget now. You can budget with apps in real time. You can connect your budget directly to your bank accounts and they will download your transactions automatically.
Find a budgeting program that works for you and get started today. I can’t emphasize this enough.
Remove unnecessary spending
You know that one thing you spend too much money on? It could be buying too many clothes, eating out instead of cooking, grabbing a coffee every morning — a habitual spending habit can add up.
You don’t have to cut out everything in your life. But if you focus on decreasing one thing in your life that’s costing you too much money, it is a good start.
Tuck away the credit cards
This year, it’s time to take your credit card out of your wallet and put it away. Hide it, cut it up, tuck it back in the closet and out of your mind, because you’re not going to use it anymore.
Most of us believe we can use our credit card and pay it off every month, and this is a good way to manage our money. In reality, only 29% of us actually pay off our credit cards every month. That means 71% of us carry a balance and end up throwing our money away on interest.
There are so many other forms of payment out there that doesn’t cost extra money. Debit card, EFT, direct deposits, merchant accounts, or good ol’ cash.
Find alternative ways to pay without racking up charges and interest, and which makes you feel the most comfortable.
Focus on decreasing debt
Any little bit you can pay off towards your debt is going to be an improvement.
You’ll be more successful at this if you have a budget. This keep track of expenses, but you can also work your money to add a little extra towards your debt each month. You can even track the amount of money you owe and watch it decrease.
It’s a beautiful sight to see your debt go down. It’s motivating, and you’ll want to put more focus on it when you start seeing results.
Think of it like going on a diet. You have to keep track of what goes in your mouth and write it down, and it seems a bit miserable, because you really just want that chocolate chip cookie. But, then you step on the scale and you’ve lost five pounds! And you think to yourself, this diet thing isn’t so bad after all.
It’s all about the results. Spend down as much as you’re able and watch the number go down. Announce it to your partner. Celebrate it with a special something when you hit a monumental goal. Give yourself rewards for working your money to take care of you.
Create an emergency fund
If you don’t have any extra money stashed away for the times when life becomes a crisis, this is the time to do it. Ideally, $1K is the goal for an emergency fund.
If that seems like a lot, then start smaller. If you had $500.00 in an emergency fund by the end of the year, this would be enough to cover most true emergencies that may happen.
This is different than a “Fuck-Off Fund” which I wrote about recently. That type of emergency savings is for when life needs a major change and requires a heavier funding.
It’s also different than a spending fund, where you have a running dollar amount in your checking account for bills and extras. You can’t mix your emergency fund dollars with your spending dollars. Keep them separate. Put your emergency fund money in a separate savings account where you have immediate access, but also takes a little work to get to it. Don’t carry a debit card for that fund.
The true emergency fund is for when something happens you didn’t expect. It doesn’t count for getting new tires for your car (that should be in your budget), or if you need a new outfit for an upcoming event (also part of your budget). This if for when something breaks, or if there’s a medical emergency. Like I’ve always told my kids, if it’s not on fire and there’s no blood involved, it’s not an emergency (of course there’s things that are legit emergencies that don’t involve fire and blood, but you get my point).
If you get paid every two weeks, that’s about $20.00 per pay period. If you saved $20.00 every paycheck (or every two weeks), you’d have over $500.00 by the end of the year.
Take the $20.00 you’d be spending on credit card fees, and put it away for yourself. Every. Time. You. Get. Paid. Just do it. You’ll feel better.
Or look at it this way: That’s less than $1.50 per day. If you work on breaking the habit of unnecessary spending and put it towards an emergency fund, you’re doing yourself a double favor. This one basic money management strategy will put your mind at ease and make life much less stressful.
Try it. Start now. Be a squirrel. Put a dollar or two in a jar every day. Put the jar in the back of the closet. Keep it and don’t spend it. Try adopting that habit. Set it as a reminder on your phone — “put a dollar in the jar” — for the end of your day. You’ll be amazed how much money you have in a few months.
However you decide to squirrel your money away, make it a consistent habit and give yourself a cushion when things go sideways.
Increase your retirement fund contributions
Let’s think long-term, to that far-off day when you are not going to work anymore. Either by choice or by circumstance, that day will come.
If you’re lucky enough to live into “retirement age”, which right now means age 65, then you will need money to live. I guarantee that by your mid-fifties, you’re going to want to bring that working thing down quite a bit. So, it’s never too early to start thinking about this.
Not having a retirement fund is one part bad planning, one part bad money management, and one part magical thinking.
So let’s change this.
Many companies offer retirement plans. This isn’t money they just give you, but it’s set up for you to contribute a portion of your salary to a non-taxable fund. Some companies even match your money up to a certain percentage or dollar amount. Not taking advantage of this is like throwing money away. And you’d be surprised how little difference your end paycheck is when you put money away pre-tax. I’m talking pennies.
When you put your money into a tax-deferred retirement plan, your taxable income decreases. This is a double whammy on having more money. You will get taxed less, AND you’ll get extra dollars from your employer. This is totally worth the small cut in net income. You are investing in your future.
If you start with 1% of your income, and see how that affects your paycheck. If there’s very little difference, increase it to 2% after a couple months. Keep increasing it until you start to get a little uncomfortable. Then stop. That’s where you want to be. You’d be surprised that you may hit 10–15% of your income without even noticing a loss.
Increase your income
Are you happy in your job? Do you feel like you’re well-compensated for your skills?
After implementing the above steps, you may be feeling like you’re ready for a salary increase.
Now’s the time to re-evaluate what you do for a living, how you make money and how satisfied you are with your income.
First, look at what you’re doing for a living. Is this what you want to do with your life? If you’re very young, you may be taking any job you can get. But the older you get, the more important it’s going to be working in a job you really love doing. At least, working in a career field that you enjoy.
I’ve always loved medicine. Since I was a kid, medicine fascinated me. I was destined to work in that field. I eventually decided to become a nurse.
I’ve been a nurse for a very long time. Since I first started nursing in the 1990s, the medical industry has changed, and not for the better. I’ve kinda been done with nursing for about eight years. I’m lucky because I’m in a position where I am good at what I do, I enjoy it, and I make a good income.
However, I’d rather be writing.
It’s okay to take your time and transition into something you’d rather do while still working at what gives you your bread and butter.
Is there something you’d rather do to make your living? Have you given it a hard look and decided that even with that career’s downfalls, you are passionate about it and would love to switch? Work on a plan for yourself to make the change happen.
This is the year to look at that and what it’s going to take to make a transition.
If you really enjoy what you do, then it may be a matter of improving your skills to get into a niche, or elevate you in the ranks. Or maybe you’re content where you are with your work. Do whatever you need to make yourself happy in your job, because you’ll be doing it for a long time.
Cha-Ching Money Blog helps you manage your personal finances by giving you tips on changing your money mindset and lifestyle. Follow us for ongoing tips, stories and ideas on how to make your money work for you.