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As we enter a new year, it’s the perfect time to reflect on 2016. We can congratulate ourselves on the ways we rocked it and commit to change the things we didn’t do so well. We all focus our efforts in January on our health, careers, and self improvement, but many people feel intimidated by their financial situation. Ignoring it is not doing us any favors so let’s make this the year we tackle it with a solid plan. Here are some simple steps you can take right now to help you get your family on track for a financially successful 2017.
Start a Budget
I’ve said it numerous times before and I’ll say it again: you need a budget. You must have a plan for your money or it will mysteriously disappear every stinkin’ time. Managing your money is a discipline just like organizing your time, prioritizing your to-do list, and balancing your diet. Left on autopilot, things tend to get a little messy. You have to take control and the budget is the best way to do so.
There are many ways to create a budget. My favorite method is a Zero Sum Budget because it literally assigns a location to every dollar that you make. I believe this method helps people reach their goals faster because it includes the saving component. I’ve written a far more comprehensive post on budgeting (Create a Budget that Works). Basically, you need to start by deducting the non-negotiable items and then assign sums of money for the rest of your categories until you have allocated your entire income to either spending or saving. I challenge you to make your budget and then really consider which categories can be squeezed a little tighter. Here are my posts with valuable information to help you get the most out of your money so you can keep your spending budget to a minimum:
The Grocery Coupon Strategy– learn how to use coupons and grocery store rebate apps to save on groceries. I use this regularly and it takes me less than 30 minutes to organize and redeem my coupons. I promise it’s totally doable and worth it. I’ve read about several bloggers who use the rebate money for Christmas funds. Brilliant.
Introduction to Grocery Store Savings– learn how store sales can help you save money on all your groceries even if you don’t feel like couponing.
Save Money on Cleaning Products– learn how you can save money on safe, environment-friendly products for the home and, best of all, get them delivered right to your door.
Pay off Debt
Chris and I paid off $16,000 of school debt before the first payment was due. You can read more about how we did it here: Our Story- Getting Out of Debt. You may think that $16,000 of debt doesn’t sound like much, but to two new graduates struggling to find professional jobs in their areas of study, the amount seemed insurmountable. Unfortunately, this is becoming an all-too-common problem and I think a lot of young married couples can relate. With the rising cost of education, most of us are facing an intimidating amount of debt as we graduate. The bad news is that this has become mainstream and people seem to have lost the sense of urgency about paying it off. The good news, is that couples everywhere are proving it can be done, even with starting salaries and young families.
The first step in attacking debt is deciding to do so! Make the conscious decision that you do not want to be like everyone else. You want to be rid of this cloud that is hanging over your finances and sucking up your hard-earned money in interest. You want to build wealth and have the freedom to put your money where you want it. Get upset about the situation and commit to making the sacrifices required to pay it off as quickly as you can. Daydream about the freedom that could come from being without debt.
Many Americans are soon to be given a pretty good chunk of change in the form of a tax return. Most of them are already mentally spending that money. Instead of upgrading your car or buying new furniture, plan to use that money to start paying off debt. It will likely be enough to start a “debt snowball.” This term was coined by Dave Ramsey and you can get all the information about it in his book, Total Money Makeover. I recommend this book to everyone. You can order it right now from the *Amazon link below or you can check it out at the library and save a few bucks. It’s a good resource to have in your personal library.
Here’s a basic definition of the Debt Snowball Method:
- Organize your debts by total amount from lowest to highest.
- Focus your efforts on paying off the lowest debt first and then work your way up. Pay only the minimum due on the others.
- Once you completely pay off a debt, continue to apply that monthly amount to the next debt on the list, in effect “snowballing” your payments.
- Put all extra money that you encounter toward each debt to pay them off as quickly as possible.
This method is manageable and simplistic. It gives small, satisfying victories along the way to keep you motivated to tackle the next debt on the list. The best time to start your debt snowball is when you come upon a little extra money such as a tax return. This is the perfect time of year to commit to this. Other unexpected income such as yearly bonuses, birthday money, and that sweet little third paycheck that happens twice a year for people on a biweekly pay schedule are other excellent sources of extra money to use for this.
No matter where you are in life, it’s time to start saving and investing. Time is a beautiful, beautiful thing in the world of compound interest. Don’t let it slip away from you. Obviously, you need to establish an Emergency Fund if you haven’t already. Next, tackle that 401(k) benefit your employer offers and then consider a Roth IRA. I’m no professional and I rarely offer much in the way of investment advice, but here’s a brief overview of my investment strategy for beginners.
First things first, make sure you have an Emergency Fund. As Allstate says, “life comes at you fast.” Crap happens. There’s no way around it so make sure you’re prepared. Here’s the link to Everything You Need to Know about an Emergency Fund. This fund should be top on your priority list if you don’t already have it saved. It will give you unbelievable peace of mind to know that you have a little wiggle room when something goes wrong.
If your employer offers a 401(k) match, for crying out loud take advantage of it! This is the equivalent of your boss handing you a pre-tax bonus with every paycheck. You cannot afford to leave that kind of incentive on the table. If you don’t know whether or not your employer offers this, march your little self down to Human Resources and find out TODAY! Put as much money as you can spare toward that match until you maximize it. Chris and I have always maximized the match amount and just pretended like that money was never even in our spending budget. It’s not optional in our house. You can certainly invest more beyond the matched amount, but do a little research first. For example, I think the fees with our investment company are a little steep. I still come out ahead when I add in the match, but I believe I can do better with further investments elsewhere. This brings me to the Roth IRA.
The Roth IRA allows you to invest after-tax income and then withdraw it down the road tax-free. People have different ideas about this, but my philosophy is that I would rather pay tax now on the money before it multiplies over decades of compounding interest and then get the (much) larger sum later tax-free. The current maximum that you can contribute into a Roth IRA if you’re under 50 years old is $5,500/year. If you can invest that much each year, do it. If not, do what you can. Every little bit counts, especially when you’re in your twenties and have the sweet advantage of time on your side.
Make 2017 your jumpstart year for building wealth. Get serious about making changes and commit to being above average. Sit down with your spouse and map out some clear-cut, achievable goals that you can start working toward today. Find your Money Motivation and focus on it. Write a comment below or send me a quick message in the Contact section and I will be happy to offer any advice or encouragement that I can. I want you to succeed this year!
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