Setting financial resolutions is the first step towards a more secure and prosperous future. However, to transform these resolutions into reality, action is essential. Here are some practical strategies to help you achieve your financial goals, whether you're creating a budget, building an emergency fund, paying off debt, saving for retirement, or increasing financial literacy.
Get a Money Mentor
Mark Landy, Retail Banking Manager at Coulee Bank in St. Paul, says “Each fiscal decision should be made with care and consideration. For example, if you go to an expensive college, you may have a high student loan debt when you graduate. An offset to that debt may be the need to spend the next several years living with roommates and driving a car that may not be your first choice.”
He recommends finding someone you trust to help you make financial decisions. “You don’t have to divulge every detail about your money, but getting advice from parents, a financial planner, or a banker can help you make better decisions,” says Landy. Find a mentor who can help you make the best choices for your future.
Budgeting Basics
To start the year off right, create a budget and emergency fund. It’s important to create a budget and track your spending. First, make a list of bills and expenses. Write down your income and then subtract your expenses from your income. Try not to think of it as a restriction on spending – it’s more of a plan for your money.
Audra Jandt, Retail Banking Manager at Coulee Bank in La Crosse, says, “Try testing a couple of different methods. Some methods, like apps and spreadsheets, work better than others.” If you find a method that works, you will likely stick with the budgeting plan. If you like spreadsheets, list all your expenses and income and manage your money manually. If you prefer a simpler way to track expenditures research a budgeting app. Some apps can sync with your bank account and track everything you spend for a small fee.
While we don’t recommend a specific app, here’s a list of apps you can research:
- Goodbudget
- EveryDollar
- PocketGuard
- Honeydue
- YNAB (You Need a Budget)
Once you decide which method works best, the 50/30/20 rule is a good way to set up your budget. “Essentially, 50% of your paycheck after taxes goes to items you need like groceries, rent, transportation, childcare. 30% goes to items like entertainment, eating out, and splurges. 20% of your paycheck goes towards your savings account to help build your emergency fund, save for retirement, and pay off debt.
With a clear budget in place, you can gain a better understanding of your financial situation and allocate your resources more efficiently. Jandt says, “An emergency fund is helpful if you have an unexpected car repair, medical bill, or a job loss. The goal is to have six months of basic living expenses saved.” You can start small and build your savings account a little at a time.
View Money Management as a Lifestyle Not a Fad Diet
Now that your budget is set and you know how to start your emergency fund, it’s time to review all debt to determine good and bad debt. Debt can be tricky. On the one hand, debt is important because it helps build credit, but too much debt can be difficult to manage.
Landy says budgeting can feel like a diet, but you don’t want to feel trapped or restricted otherwise you won’t continue to make good choices. It’s okay to splurge on items sometimes. Enjoy the concert, vacation, and dinner out, but don’t overindulge. Overindulging is like buying a Mercedes when your budget is aligned with a Volkswagen. He says, it doesn’t mean you can never drive a Mercedes, it just means you must wait until your budget aligns with the payments, insurance, and repairs associated with that type of car.
To start building good credit, he says to apply for a credit card with a small limit – about $300. Purchase something for a minimal fee like $50, and then pay it off immediately. Continue to make small purchases and make regular payments. This helps build good credit and tells lenders you are reliable and can pay off debt.
Landy says, “If you already have extensive debt, it’s important to review it and determine which has the highest interest rate. It’s best to try and pay that debt off first.” This is known as the debt avalanche method. You pay minimum payments on all other debts while attacking the debt with the highest interest rate. Then move to the debt with the next highest interest rate and work to pay that off.
Start Saving for Retirement
Balancing debt repayment with retirement savings can be challenging, but it is both possible and beneficial for your long-term financial health. Landy says to start by taking advantage of your company’s 401(k) because it reduces your taxable income, and your employer usually matches up to 4%. An employer match helps your money grow faster and essentially represents free money.
Money in a 401(k) grows through compound interest, meaning you earn interest on the principal and the interest already accumulated. Over time, this can lead to substantial growth. According to Investopedia, if you start saving $100 a month at age 20. You earn an average of 4% annually, compounded monthly across 40 years. You earn $151,550 by age 65. Your principal investment was just $54,100.
The Key to Smart Fiscal Decisions
Financial literacy is a crucial skill that affects every aspect of your life, from your day-to-day budgeting to long-term financial planning. Continuing to educate yourself about money offers numerous benefits and helps you achieve financial stability and success. Landy recommends visiting the resources page on our website for more information from financial experts. You can also visit BBB.org or visit your public library. And remember, finding a money mentor can make all the difference.