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Financial Success. We all gravitate towards that notion, some more than others. If covid 19 has taught us anything, it’s that you must learn to expect the unexpected. After all, how many of us really thought that we would live to experience a pandemic. Moving into 2020 I had a lot of hope that this year would have been better than the last. Many things are now different. This year has changed many in both good and bad ways. Some of had more time to spend with family and loved ones. Others have lost family and love ones. Many are without jobs and the numbers of positive covid cases are still increasing. Now, more than ever it is important to set yourself up for financial success. Your money means a lot more than ever. It is your responsibility to set yourself and your family up for financial success. Below is my five amazing simple tips for financial success:
- 1. Live Within Your Means– This is one that can be very tricky for most. You try to fit in with you peers, drive what they drive or better, and live in homes that you can’t really afford. Most people are a paycheck away from poverty. Covid 19 has made that very apparent. Lots of people have really fallen on hard times due to massive lay offs and complete closings of businesses and organizations. Keeping up with the Jones’s is not only overrated but can have you making payments for years. Interest on credit cards is often higher than 15% and can often be as high as 30%. Having credit card debt can cost you hundreds of dollars in interest payments and fees. Even if you have zero percent interest, you are still making payments. Having the money going out of your bank account for payments, keeps you from being able to save it or invest. Bottom line…making payments (other than mortgage or student loans payments) limit your options in life. Strive to live within your means. If things are necessities reassess how much they are needed and if they are truly needed.
2. Have a Spending Plan Do you know where your money is going? Most of us do not. There are some things that are being automatically deducted from my bank account monthly that I didn’t even remember. You sign up for a service and thought you were going to use it and totally forgot. Guess what? You also forgot to cancel this expense. This can lead to hundreds or thousands of dollars per year depending on the service. Making a spending budget so you know where every penny is going can make a world of difference in your spending plan.Or you can use something simple like the 50/30/20 budget (50% to needs, 30% to wants and 20% for savings).Families that plan their spending have emergency funds, pay their bills on time and avoid unnecessary fees. Just because you budget does not mean you cannot spend money. It just means you have to plan for it. Live intentionally and make sure you want what you are spending your money on. Look at the price of the item or experience as hours worked. This is a tip that has worked for me throughout the years. When you quantify an item or experience that way, you determine if it’s worth it. Look we all work hard for our money and spend a lot of hours at work away from our families. If you want to purchase a big ticket item but realize that it equates to working 12 days or hard work, perhaps you will decide against it. If you make $150 a day and you want something that costs $300, is it worth 2 days of salary. If it is, add it to your spending plan and get it.Never impulse buy. Think about needs vs. wants.
3. Have a Savings Plan
Having money in the bank is what will keep you smiling when things are not going your way. Saving money means putting money into retirement savings. The easiest way to save for retirement is with a 401(k) plan through your employer. The 401(k) plan is a defined-contribution plan. That means that the available balance in the account is determined by the contributions made to the plan and the performance of the investments. The employee must make contributions to it. The employer may choose to match some portion of that contribution, or not. The investment earnings in a traditional 401(k) plan are not taxed until the employee withdraws that money, typically after retirement. After retirement, the account balance is entirely in the hands of the employee.
A Roth IRA is another good option for retirement savings. A Roth IRA is an individual retirement account (IRA) that allows qualified withdrawals on a tax-free basis provided certain conditions are satisfied. Roth IRAs are funded with after-tax dollars; the contributions are not tax-deductible. But once you start withdrawing funds, the money is tax-free. Conversely, traditional IRA deposits are generally made with pretax dollars; you usually get a tax deduction on your contribution and pay income tax when you withdraw the money from the account during retirement. There are others also. Pay yourself first and you cannot go wrong. The second part of saving is having an emergency fund. Ideally, this should be 3 – 6 months of your monthly expenses. To ready my post on How to Start and Build An Emergency Fund, click HERE.
If you don’t already have a good start on 3 – 6 months of savings, this could take some time. Start by accumulating $1,000 as quickly as possible to avoid having to carry a balance on a credit card.
4. Make a Plan for Paying Off Debt
Debt can steal your dreams. No one wants to spend their life making payments. Some people talk about good and bad debt. While mortgage payments and student loan payments are not as “bad” as consumer debt, at the end of the day they are all payments. To read my post about Good Debt vs Bad Debt, click HERE .
If you have credit card balances of any kind, paying those off should be a priority. Cut back on expenses, make extra money or both. Just do it. You must try to get in front of your credit card debt. For important Tips on how to paying off credit card debt, click HERE
Additionally, if you have credit card debt, I would urge you to take a deep dive into the reason why. A person should not have more than a few credit cards and hopefully they will have a lot of rewards.Credit cards should be a convenience (paid off monthly) and not a burden that requires years of high interest payments.
5. Set Financial Goals
Having goals can be a big motivator. There are certain things in life that will be hard to attain if you do not plan for them. This can mean things like having the money for a house, a child’s tuition or a dream vacation. The beginning of the year is a great time to look at what you want to do with your money.
Set some goals for the next few months, for the next year and put some on your list that are five years or more in the future.
If you don’t plan for it, it may be difficult to achieve it. Start with goals and a plan and you will have a head start on financial success. While you are setting goals, considering setting some for your health and your family life. It may not always seem apparent, but our health, finances, career and family life are all intertwined.
Everyone of us want to be financially successful. That is what we strive to do by going to school, getting an education and finding a job that will steer us in that direction. Some of us are more successful than others. Many are trying to make ends meet. As often as possible, set yourself up for success. Know your limits financially and make attainable goals that will make your dreams a reality. There is such a thing as digging yourself out of a mountain of debt and being financially free. This takes time, discipline, and sacrifices. It may be difficult, but not unobtainable.