With the turning the calendar page to a new year, many are making new year resolutions to improve their physical health, relationships, priorities, etc. Do not forget to make some financial well being resolutions as well! Statistics show that one of the leading causes of stress and anxiety is financial struggle. So, here are some resolutions to consider to get your bank account in order.
1. CREATE A BUDGET.
Beginning this task can be overwhelming for many, but it really starts as simple as tracking your income and expenses for a month. Use your bank and credit card statements to track recurring expenses, one-time expenses, and all sources of income for one month. Journal cash purchases as well. Once you've done this, putting the expenses on one side of a piece of paper and income on the other helps you to see how it balances and where cuts may be possible.
If you want to use technology for this task, many like to use Microsoft Excel, as you can also build in calculations to sum your items, etc. There are also a lot of great mobile apps to help you build a budget, such as Monarch, and Rocket Money.
*Pro Tip - when you are reviewing your budget, do not forget to look over any "subscriptions" you have, either mobile apps, streaming ap
*Pro Tip - when you are reviewing your budget, do not forget to look over any "subscriptions" you have, either mobile apps, streaming apps, etc. that auto-renew that perhaps you have forgotten about. On average, Americans waste between $200-$300 annually on unused mobile app subscriptions.
2. BUILD UP YOUR SAVINGS.
Even if you have mounted debt, it is still so important to put a little bit, each paycheck, into savings. Best practice is to have it auto-transfer to your savings account, then you never even miss it. Working to build a little over time becomes a lot later. It can serve as an emergency fund or savings for a larger purchase planned down the road.
3. REDUCE YOUR DEBT.
Having a substantial amount of debt can be extremely overwhelming and feel impossible to conquer. The key to taking on this challenge is to take it one step at a time. The first step, make a list of all of your outstanding debts (loans, credit cards, etc.) and list the interest rates being charged for each. Then, it's time to prioritize who gets paid off first. The goal should be to pay off the debt charging the highest interest rate first. This is typically your standard credit card. Work to pay those off first, paying as much as you can within your budget, and then pay a little over minimum payment on your other debts while you focus on paying off the first. Once that's paid off, revisit your list and select the next one with high interest to be your next target. Continue this way until you've paid them off.
Other great strategies to consider is consolidating your debt. This is when you take as much of your debt that is spread out and put it all into one program to get it paid down. Some will transfer several credit cards all to one with a lower interest rate offering. Some will obtain a Home Equity Loan or Line of Credit to pay down the credit card debt as a HELOC typically has a lower rate of interest. If you'd like to explore these options, we recommend you schedule a free appointment with an LLCU Certified Financial Counselor. They would be happy to help!
4. IMPROVE YOUR CREDIT SCORE.
Unfortunately, one of the side affects of mounting debt can be an impaired credit score. This can hurt in the long run due to the fact that not having a strong credit score could possibly keep you from obtaining a loan or from being offered a competitive interest rate on the loan.
Some strategies to consider if you want to improve your credit score include the following:
- Pay your bills on time. Even if it's just the minimum payment required. Do not avoid calls from your creditors. Most are willing to re-negotiate payment terms if you fall on hard times. Take the call and plead your case.
- Keep your credit use low. Avoid applying for new credit cards and work to get your credit balance below 30% of your available credit. Work toward the goal of still using a credit card (as having one can improve your credit score), but pay the full balance each statement.
- Regularly monitor your credit score. Watch for errors and when you see them, dispute them. Schedule a meeting with a professional to better understand your report. You can also sign up to get a free weekly credit report at www.AnnualCreditReport.com.
5. SPEND LESS.
Seems so simple when typed as a two-word sentence. But we all know, this one is easier said than done. Our advice...start by making SMALL habit changes. Here are a few ways to do just that:
- Practice the "Sleep On It Rule". When you are thinking of making a purchase, no matter the cost, it never hurts to sleep on it. Whether in a store, or shopping online. Leave it sit for 24 hours before you click to buy. Much of the time, you will wake up and think, "You know what?, maybe I don't need that right now." And then you've saved! If you still decide to buy it, at least you know you've given it thought.
- Pack your lunch. The average American spends between $3,000-$4,000 dining out annually. If you cut that in half and make half of your meals from home and instead move that to savings, you'd have a nice little savings fund started.
- Pay with Cash Only. Many will set aside their "spending money" for the month using an envelope method. One cash envelope for groceries, one for utilities, one for entertainment, etc. When that cash envelope is empty for the month, they are done spending in that category for the month. This practice will keep you from charging up your credit card debt.