The following post is by MPFJ staff writer, Melissa Batai. Melissa is a freelance writer who covers topics ranging from personal finance to business to organics to food. She blogs at Mom’s Plans where she shares her family’s journey to healthier living and paying down debt.
Once again, a new year is upon us, and with it, the promise of a fresh start. Each year, we find ourselves on a precipice, leaping from one year to the next. If we choose, we can also leap from one lifestyle to another.
A new year seems more powerful than any other time. Why not harness that power and momentum and make this year the year you get your financial house in order?
If you decide to take on the challenge, don’t try to improve every aspect of your finances immediately. Instead, take it day by day, month by month. In fact, I recommend that you make one change every month or two. By the end of the 2015, you’ll be in much better financial shape than you are right now.
Take Advantage of Your Employer’s Match
Does your employer offer a match on your retirement savings? If so, your job for this month is to set aside as much money as you can to take advantage of your employer’s match. If your employer matches up to 6% of your salary, try to put away 6% every month. Make this easy on yourself by having your retirement savings automatically deposited. Now, instead of saving just 6%, you’re saving 12% in retirement thanks to your employer’s match.
If you can’t put aside as much money as the employer will match, put aside as much as you can.
Pay Yourself First
Too often, people pay all their bills and are left with the remaining money. They think, I’ll save some money if I have any left over this month. Guess what? They usually don’t have money left over. The trick is to pay yourself first.
If your budget is extremely tight, maybe you’ll only be able to set aside $20 or $50 a month. That’s okay. Don’t make the mistake of thinking saving isn’t worthwhile for such a small amount. If you save $50 every month, you’ll have $600 set aside at the end of the year. That is much better than having nothing saved. Of course, if you can save more, do.
The best way to make sure savings happens is to have the money automatically withdrawn from your paycheck and deposited in your bank account. After a while, you won’t even miss the money from your paycheck, and it will continue to accrue in your bank account.
Learn to Budget
If you’ve read several finance books, you know that there are many different ways to budget. The important thing is to find a way to budget that works for you.
If you typically overspend each month, you might benefit from being on a cash-based budget and only paying in cash for a few months until you learn to not overspend.
Search budgets online, and you will find many different tools and strategies. I’ve found America’s Cheapest Family’s budgeting strategy works best for me, but there are many more to choose from.
Don’t forget to consider using software to help you. There are plenty of great software tools out there like Mint.com, You Need a Budget, and Pear Budget. Many offer a free trial period. Don’t be afraid to try a few until you find the right match.
Finally, remember that it may take 3 to 6 months to get to the point where your budget actually matches what you do with your money. Don’t be discouraged if your budget doesn’t work out the first month or two. There is a learning curve to budgeting, especially since most of us are used to spending fairly freely.
Pay Off Debt
If you’re in debt, make this the year you really focus on not adding any new debt and paying off what you have. If you’re married, sit down with your spouse and decide how much debt you want to pay off this year and how you’ll do it. Maybe one of you will take an extra job, or maybe you’ll put your tax refund on your debt.
Once you calculate exactly how much you owe and make a plan for paying it off, you’re much more likely to see your debt load decrease.
Learn about Investing
Even people who have a fairly good handle on their money can find investing intimidating and confusing, but it doesn’t have to be this way. There are plenty of good resources that can help you learn more about investing.
If you search online, you’ll find courses you have to pay for to learn about investing, but there are also plenty of free resources. Fidelity offers a free learning center covering topics like mutual funds, ETFs, and options. Morningstar offers 172 different courses on stocks, funds, bonds, and portfolio building and monitoring. You can even take a free online class from Stanford University about making smart investment choices.
There are so many resources, there is no reason why 2015 can’t be the year you learn more about investing.
Give Your Extra Money a Job
Each of us receives extra money every year. Most of us just absorb that money into our regular budget, but if you instead give it a purpose, you’ll make it work much harder for you.
For instance, my husband and I wanted to make some cosmetic repairs to our home like getting a new kitchen faucet and putting in a garden. The problem? We didn’t have extra money to buy the supplies. So, one day I decided that whenever I got a one-time writing job, I’d put that money in a home improvement fund. After all, these one-time jobs gave me money I wasn’t expecting any way. Within 6 weeks, we had enough money for both the new faucet and the supplies to build a raised garden bed.
Don’t believe you have enough money coming in every year to make a difference? Please reconsider. Julie from The Family CEO has earned $43,082 in “found” or extra money over the last two years and has used it for everything from helping her daughter pay cash for college to bulking up her emergency fund.
Give your extra money a job. You’ll be surprised how much more money you have coming in than you thought.
Save for Your Children’s College
I’m putting this last because saving for your own retirement and getting out of debt are far more important. If, after doing those two things, you have extra money, consider saving for your child’s education.
Of course, the earlier you start investing the better, thanks to compound interest. You could even start with a small amount like $10 or $20 a month because every bit will help.
However, if you’re like we are and have a 10 year old child but very little college savings, you can take a different approach. For every dollar that our son saves for college, we match his contribution. So far, in the last four months, he’s saved $50, so he has $100 in his college fund. Seeing us essentially double his money has made him more excited to save, and it also helps make him take an interest in finances and saving for the future. For us, we are still saving for his college education, but we don’t have the financial pressure of saving more than we can comfortably afford to.
How about you all? What financial moves do you want to make this year? What financial goals are most important to you?
Share your experiences by commenting below!
**Photo courtesy of http://commons.wikimedia.org/wiki/File:Analyzing_Financial_Data_%285099605109%29.jpg
