Finances tend to be a topic about which many people do not want to talk. It is often a stressful conversation and people want to avoid it. No matter how uncomfortable the topic makes you, you should not avoid it. While it may seem overwhelming, if you follow a few simple steps, you can quickly have a plan to help you reach your financial goals. It is important for everyone to take control of their finances, no matter how much money you have. If you implement some changes, you could have more money. Continue reading to find out how to get rid of debt and increase your financial wellness.
What Is Financial Planning?
Dave Ramsey tells us that financial planning includes three important pieces. Those pieces are knowing where you are financially and determining where you want to be. Then you create a plan to reach those financial goals. You could reach out to a financial planner to help you plan your financial future. There is a cost to hiring someone to help you. I encourage you to do as much of it as you can on your own. It takes a little bit of knowledge and a deep understanding of your own goals.
Financial planning puts you in control of your money. It allows you to take control of how you spend your money. It is important that you create goals for you. Do not take on someone else’s goals. You have to do what works for you. Working towards a secure financial future takes consistent work. It often takes compromise. If you are not doing it for the right reasons, you may not be able to get the rough moments. When thinking about your financial plan, you should think about goals, short term and long term. It is much easier if you break your goals down into small manageable pieces. The tips below are a great place to start.
Tip #1 – Know Your Goals
I am going to start with an obvious statement here. The first place to start when you want to achieve your financial goals is to create your goals. You should start with the end in mind. You cannot put yourself on a path if you do not know where it is going. Think about what you want your end result to be. It can be anything from paying off debt, saving for retirement, or creating an emergency savings account. Perhaps it is all three of those things. Start by writing down your goals, no matter how many you have. Once you have done that, you can prioritize your goals. When you complete those steps, you have taken key steps to achieving your goals.
The goals you set today do not have to be the same goals you have next year. You may want to create a long term goal of saving for retirement. That is a goal that you continue to work towards. Then you have several short term goals. They may be pay off your debt and create an emergency savings fund. You can work towards both of those goals at the same time, or you can focus on one at a time and check them off when complete. Once you achieve your short term goals, you can create more short term goals. You may decide to create many short term goals and put them in priority order and work towards them one at a time.
You should also pull your credit report and take a look at it. This allows you to look at your credit card score and your credit history. You can see if there are any errors on the report. If there are errors, you should fix them immediately. Making sure you have the best credit score possible can only help you with your financial plans.
Tip #2 – Negotiate Your Bills
When considering your financial goals, decreasing your debt may have been one of yours. When it comes to debt, it often seems like a mountain that you just cannot climb. While it may seem that way, it is possible to decrease debt. It does not happen overnight. You need to dedicate yourself to the task over the long term. One way that you can decrease your debt is to negotiate your existing bills.
One large source of debt for many people are medical bills. They are often a bill that you are able to negotiate fairly easily. They may be willing to take a partial payment if you can pay it immediately. Some creditors would rather take less money today but guarantee they are getting the money, instead of hoping you make regular payments for however long that takes.
There are some tips to approaching negotiating all bills, not just medical bills. You should wait a short time after you receive your bill before you make contact with the creditor. Do not wait too long. You do not want your bill to go to collections. Give the creditors a little bit of time, then contact them about reducing the amount you have to pay. Make sure you call the creditor in the morning because most people are more agreeable in the morning. When you are on the phone, do not allow your emotions to take over. This is not a personal conversation, it is about reducing your bills. Remain pleasant, but ask for a supervisor if you are not able to get anywhere with the person on the phone.
Tip #3 – Investments
One of the best ways to reach your financial goals of saving for your future, is to invest in it. Your investment goals may depend on some factors. Your age and how soon you want to retire may drive how aggressive you want to invest. An easy way to invest your money is consider your employer’s 401K plan. If your employer offers this type of plan, you should consider investing that way, if you are not already doing so. A 401K can help you save more money than you would with a traditional savings account. Typically, your employer matches a certain amount of the money you put into your 401K. You should find out how much your employer matches and put that much in your account. This is a fast way to double your investment.
You can start by putting a small amount of money into your account with each paycheck to determine how it impacts the amount of money you take home. The good news is the money is taken out of your paycheck before you pay taxes. This decreases your tax liability, which means you pay less taxes and bring home more than you think. You can slowly increase the amount of money you put in your 401K. If you do not have access to a 401K, you can create an IRA. Once you set up an IRA, set a goal of how much money you want to save per month. Another way you can invest is to purchase real estate by purchasing a house, if you do not already have one. When you purchase a house it becomes an asset that becomes a tax benefit.
Tip #4 – Pay Off Mortgage
If you are serious about reaching your financial goals, and you own a home, it may be in your best interest to pay off your mortgage. There are differences of opinion as to whether or not paying off your mortgage is a good idea. Everyone has good ideas and mortgage tips for you. For purposes of this discussion, I am only going to focus on the benefits to paying off a mortgage. You should understand that there are positives and negatives to doing so. You should consider both sides if you decide to pay off your mortgage. When you pay off your mortgage, it frees up the money you are paying on your mortgage to be used in other ways.
If you have other debts, you can use that money to pay off those debts. If you do not have other debts, or you only want to use half of the money for debts, you can use the rest to invest. There are many options in which you can invest, such as securities and bank certificates. You can also invest your money into stock, especially if you are looking for long term investments. The potential return on your investment is greater than you were paying on your mortgage.
If you are considering making more aggressive investments, you should considering consulting a professional to help you with your investments. You do not want to lose all the money you could be saving. If you do not want to risk losing your money, you could save it in a regular savings account. You will not get as high a return on your investment, but you will save money.
Tip #5 – Create A Budget
One of the best tools to help you reach your financial goals, no matter what they are, is to create a budget. There are many reasons why it is a good idea for you to create a budget. I can understand why you do not want to. It is not something that most people want to consider, but it is something you must do. We know it can be stressful to think about money and how you are spending it. It does not matter what type of financial goals you have. None of them can start without having a budget in place. Without a budget, you do not have a clear understanding of how much money you earn or spend.
You may not be able to change how much money you make with each paycheck, but you can control how much you spend. Even when you think you cannot control it, believe me, you can. It may take some hard work and sacrifice, but it is possible to save money. Here are many budgeting apps and websites available to you for free. You should consider one of these to help you create a budget. They are simple and easy to use. They have predefined sections for you to fill in the appropriate information. This makes it easy to see how much money you are spending and in which areas of your life.
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Tip #6 – Cut Spending
Once you create a budget and you see where you are spending money, it gives you a good idea of where you can make changes. Keep your financial goals in mind. This helps to keep you in check when you no longer want to follow your own budget. It can also help you in weak moments when you want to splurge on something. This gives you a reason to pause and decide how badly you want that item. You may decide that you really want it and splurge on it. That is ok as long as it does not happen frequently and you understand how this impacts your financial goals.
For now, I want to focus on other ways you can cut spending. Start with the simple things, such as that gym membership you do not use. If you have one that you are not using, cancel it. You should drop everything and cancel it right away. If you have other subscriptions that automatically charge you each month, take a look at them and determine if you actually use them. And if you do not, cancel them. If you do use them, check the frequency and make sure it is appropriate to your needs. And if you think you should keep the same frequency, make sure it helps keep you in alignment with your financial goals.
Tip #7 – Insurance
Paying for insurance is one of those necessary things that you really should do, but it can be expensive. There are some ways to save money on insurance. If you can save a decent amount of money you can take steps towards reaching your financial goals. There are many apps available that allow you to look at several different insurance companies to see who can give you the best rate. You can compare the prices without any real impact on you.
Some other ways to save on insurance is to see if you can remove parts of your current policy. If you have complete coverage, you may want to consider to decrease it to liability only. This is a good option if you have an older car because you may pay more in insurance premiums than the car is worth. You should also check to see if you are paying for double coverage. For example, if you have roadside assistance through some other means and you have it through your insurance, you are paying for it twice. You should cancel one of them to save money.
Tip #8 – Decrease Utilities
Another great way to reach your financial goals is to save money on your monthly utility bills. You are probably thinking, the utilities are what they are so there is no way I can save money. That is not true. There are always ways to save money. There are some simple ways to save money, so I will start there. You should change all the lightbulbs in your house to more efficient energy saving bulbs. This can save you hundreds of dollars a year. You should make sure you unplug all appliances when you are not using them. This can also save you hundreds of dollars. Sometimes turning off the appliances are not enough because they are still drawing energy and you pay for that.
Another way to save hundreds of dollars per year is to adjust your thermostat. If you set your thermostat two or three degrees higher in the summer and two or three degrees lower in the winter, you will be amazed at the savings. That small temperature changes is not that noticeable. You can wrap up in a blanket to stay a little warmer in the winter. And you can keep your blinds and shades closed in the summer to keep out the heat. You may also want to consider ceiling fans to help keep the air moving in the summer time so that it does not get stuffy in your house. And you may not even notice the slight change in temperature. You will definitely notice it in your bill.
So, you are probably spending a ridiculous amount of money on television and internet services. The first thing you should consider is do you really need television? If the answer is yes, then do you really need all the channels you have? Could you go with streaming options and save a lot of money? Yes, you have to put out the initial investment to buy the device, but that probably does not cost as much as a month of television.
If you cannot live without your digital cable provider, you could consider a less expensive package. At a minimum you could call your provider to see if they are offering any specials that may decrease your monthly payment. You will not know until you ask. If you have not considered streaming television, you really should. It is a huge cost savings and you get just as many, if not more, options. Even better, you will pay about a fourth of your current cost.
Tip #9 – Save, Save, Save
No matter what financial goals you have, saving money should always be in the plan. You should have long term savings and short term savings. Long term savings is something that you do not want to touch. You just want to sit back and watch it grow until you are retired and then use it to supplement where you need. Your short term savings should be an emergency type of account. This account should have enough money in it to pay for three months worth of expenses in case something happens. This can be the fund you draw upon when there is a large expense that you do not have the money to pay.
Just keep in mind, any money that you take out of your emergency fund must be replaced. If you only take the money out and never replace it, you no longer have an in case of emergency option. The best way to save money is to have it come directly out of your paycheck before it ever hits your bank account. That way it is like it is not even an option. Not only does it not become money available to spend, but when it happens automatically, you do not have to be responsible for moving the money. There is not temptation on your part to spend it instead of save it.
In addition to saving money in a bank account, you should look at other ways you can save money in your spending. A quick way to do that is stop eating out. This means all types of eating out, including quick stops at the coffee shop. Cut it all out and see how much money you save. You probably do not even realize how much money you are spending per month. You can pack your lunch and take that to work instead of going out to eat.
Not only is the healthy for your bank account, but it is better for your overall health. You can make coffee at home instead of stopping at the coffee shop. If you spend $5 per day on coffee 5 days a week, that is $25 per week and $100 per month. Over the course of a year, that is a savings of $1200. I am sure you can find much better ways to use $1200 than at the coffee shop.
Tip #10 – Estate Planning
If one of your financial goals is estate planning, you should begin to think about that now. If you really want to leave an estate to your children or those close to you, you have to have a plan. Anything can happen to you at any time. It does not matter if you are not considered elderly, things happen every day. You need to be prepared. So you can go online and create your own will with a form. You can always visit an expert in estate planning to help you. As you age and your assets change, you should revisit your will. You also should consider who is going to care for you when you are older. You should begin to think about things like medical directives and the like.
Tip #11 – Reduce Debt
One of your top financial goals should be to decrease your debt. If you have any type of debt that is not useful to you, such as a mortgage, you should work to reduce it. Most debt does not do anything for you but cause stress and anxiety. We live in a world where it is difficult to have no debt, but you can work hard at keeping it as minimal as possible. If you have a high debt to income ratio right now, you should work hard to reduce it. If you allow your debt to grow, you pay more money in the long run.
You should devote all extra money you have to paying down your debt and reducing it as quickly as you can. It does take time to reduce debt, so you must remain focused and consistent. When you are deciding to purchase something, you need to ask yourself, what I rather have this item right here? Or would I rather get out of debt faster? No matter which one you choose, as long as you understand the consequences of your decision, you are in control. It is important to remain in control of your spending to pay off debt sooner. Debt can become a vicious cycle, so it is important to decrease it to a manageable level.
Your financial goals are important. However, it is important that you truly understand them. Working toward any goal is challenging, but if you keep your goals in mind, it is easier to stay the course. However, when those goals are not yours and they are what someone else tell you they should be, it is really hard to stay on track. Paying off debt, staying on a budget, and saving money are challenging. When it gets hard, you need a reason to stay on track. If you are not fully invested in working towards the goals, you will not be able to stay on track when it matter. Focus on what you really want and work hard to get there.
Julia Peoples is a long-time business manager focused on providing decision making assistance to the public. She works with people at key points of their lives who are making important retirement and financial decisions. She has had many articles published that educate the public on sound financial decision making.
Julia writes for those who are working towards financial freedom or a better understanding of how finances work. She has shared her financial insights with individuals on a one on one basis for years.