Q: I’d like to focus on improving my finances in 2020, but there are so many areas that need attention. Where do I start?
A: The start of a new year is a wonderful time to make important changes in your financial life. Lucky for you, you don’t have to go it alone. Freedom First will walk you through some financial improvements you can make this year and continue to guide you every step of the way.
We’ve broken down some of the most popular financial resolutions into concrete steps and outlined the ways Freedom First can help you implement each change into your life.
Build a budget
Why it’s crucial: Creating and sticking to a monthly budget will force you to be accountable for your spending while giving you a clear idea of your financial reality.
In 3 steps:
- Track your spending over three months.
- Using a spreadsheet, a pen and paper, or a personal finance app like Spending Habits (formerly Money Manager) in your online banking/mobile app, divide your expenses into categories, such as mortgage, groceries, etc. Use an average of the last three months to set a reasonable spending limit for each category.
- Going forward, track your spending and be sure to stick to your preset limits for each category.
If your budget reveals your monthly income doesn’t cover your expenses, or you find you’re overspending in any area, look for ways to cut back. Freedom First offers free Financial Education & personalized financial coaching. Our financial coaches can provide answers and individualized guidance for money-related questions you have.
Get out of debt
Why it’s crucial: Carrying long-term debt can mean paying exorbitant amounts of interest for years on end. It can also devastate your credit score.
In 3 steps:
- Make a complete list of all your outstanding debts in order from smallest balance to largest.
- Review your monthly budget and look for ways to cut back. Alternatively, you can look for ways to increase your monthly income.
- Work on paying off your smallest debt with the money you trimmed from your budget, or with the extra income you’re pulling in. Once you’ve paid off that debt, move on to the second-smallest. Repeat until you’re completely debt-free.
Why it’s crucial: According to the Federal Reserve, 40% of Americans can’t cover a $400 expense. Living without a safety net means a relatively small, unexpected expense can throw off your finances and force you into debt. Aside for paying for emergencies, savings can help fund your long-term plans, goals and dreams.
In 3 steps:
- Review your monthly budget to identify your biggest spending traps. Then, find ways to cut back, such as shopping with cash only, cancelling subscriptions you never use or initiating a “financial fast” one weekend each month, in which you spend no money.
- Use all money saved to open an emergency fund or a savings account at Freedom First. It’s best to focus primarily on your emergency fund until you have 3-6 months’ worth of living expenses stashed away.
- Set up an automatic monthly transfer from your Freedom First checking account to your Freedom First savings account so you never forget to feed your savings.
Maximize your retirement contributions
Why it’s crucial: Many workplaces offer to match 401(k) contributions. These contributions aren’t taxed and they come off your paycheck, which is taxed, making participation an excellent decision. Your 401(k) withdrawals will be taxed in the future, but the compound interest your fund will accumulate until then will more than offset this cost.
In 3 steps:
- Speak to an HR representative at your workplace to find out about your current 401(k) contributions.
- Identify how to best maximize your 401(k) contributions going forward.
- If you have any other retirement funds, such as an IRA or a Roth IRA, also review your contributions to determine if you are making the maximum funding allowed.
Let Freedom First help you meet your money goals this year. Together, we can make this the year you take control of your finances and start working towards a financially comfortable future.