Did you know…
- 40 percent of U.S. adults don’t have the money to pay for a $400 emergency?
- According to the 2018 data from the Federal Reserve, Americans hold over $1 trillion dollars in credit card debt!
- A 2017 CNBC article revealed 44 million people having outstanding student loan debt.
- The Department of Education collected more than $4.4 billion in defaulted student loans in the first quarter of 2017.
- As of February 2017, the Federal Reserve listed the average personal savings rate in the U.S.at 5.6 percent. This means the average American household saves just over half of what they should save. Some experts recommend a personal savings rate of 10 percent of your income.
- A report by Smart Asset finds 29 percent of households 55 and over have no retirement savings or pension.
Allow these figures time to settle into your mind, and then ask yourself, “Do I want to be part of the statistics referenced above?” If you answer that question with a resounding, “NO,” then read on to learn seven ways to get your financial house in order and turn 2019 into a success.
1) Develop a Cash Flow Projection (aka Budget)
Taking some time to jot down your goals (short-term and long-term) and then charting a plan to achieve those goals is a financial strategy that is older than time. However, a Gallup Poll provided by debt.com found only about 1/3 of Americans (32 percent) maintain a household budget. This is an exercise that can take less than one hour to set up, and about 30 minutes per month to monitor—and can increase your chances of financial success dramatically. Why aren’t more Americans doing this? Perhaps people don’t know where to start. We have compiled some resources below that can help you start the process of understanding your cash flow.
2) Resources to Help Develop a Budget
Mint: This is an app that automatically updates and categorizes transactions to capture real time spending. Categories can be added, bills can be tracked, ATM transactions can be split, and you can set budgets that alert you when they start to top out. The service also comes with a free credit score.
PocketGuard: Allows users to know how much they have for spending. It analyzes the numbers to show how much money is available after accounting for bills, spending, and savings goal contributions. Users can view how much money is left over for the day, week, or month.
YNAB: With this app, you build your budget based on your income, giving every dollar a role in your budget. This includes living expenses, debt payments, savings, and investments. Users are forced to think about every dollar they spend.
It offers both desktop and mobile interfaces, options to sync your bank accounts automatically or enter expenses manually. It also includes debt payoff and goal tracking features.
GoodBudget: Formerly known as Easy Envelope Budget Aid, GoodBudget is a great tool for couples, as you can share and sync budgets with budgeting partners across the iPhone and Android spectrum. It uses the familiar envelope budgeting philosophy for all your bills and spending.
When you add a new transaction, you can add details and break up the expense into multiple envelopes. You can budget by category (called envelopes in the app) with up to 10 for free. Add to your envelopes from your income every payday and you’ll easily be able to see what you have left over.
3) Review Your Bills & Determine Where You Can Cut/Eliminate Costs
Reviewing your bills can be an eye-opening experience. Perhaps there are subscriptions that no longer serve you, which you can eliminate. Maybe you had no idea how much money you were spending on eating out. Is there a better cell phone plan available now that could save you money? Can you adjust your cable bill for a lesser plan or perhaps get rid of it altogether? These are questions you can answer once you’ve done a screening of your monthly bills. There are also apps available that can help you with this effort.
Truebill analyzes your spending, looks for bills you can reduce, and negotiates better deals for you. It is free to set up. However, if you use them to negotiate a bill, they take 40% of the savings for the year. For example, if they save you $50 annually on your phone bill, they will take $20.00.
Set up bill pay either directly through service providers or through your bank’s online bill pay service. This way you won’t have to write checks each month, as the money is either sent via the bank for you or automatically pulled from out of your bank account each month.
Digit is an automatic savings app. It scans your checking account and automatically transfers excess cash to a savings account. There is a $2.95/month fee. Some banks offer services like this, such as Bank of America’s “Keep the Change.” Check to see if your bank offers a similar service.
4) Build an Emergency Fund (3-6 Months of Living Expenses)
According to CNBC, 55 million Americans have no emergency savings! An emergency fund is like an insurance policy. It is a resource to tap when an unexpected event derails your well-laid plans. Think of any extra money that comes in as a drop in your emergency bucket (tax refund, bonus, money earned from a side job). Keep this emergency money in a savings account (separate from your primary checking account). This will deter you from using it unnecessarily. Consider setting up an automatic transfer into this account with every paycheck or at least once a month. Even if you can only transfer $15 initially, it is something that will add up over time.
5) Pay Down Debt (Especially Credit Card)
All debt is not created equally. Some is more advantageous than others, while other types can be devastating to an individual’s financial life. Credit cards can wreak havoc on a person’s financial situation, with high-interest rates and late fees. There are strategies to pay down debt, as well as apps that can help.
Tally is a mobile app that manages the process of paying down credit cards. It figures out which cards have the highest APRs and uses a Tally line of credit with a lower APR to help you save money and pay down your debt faster. A FICO score of at least 660 is required.
Other options include:
- Debt Snowball Strategy: You pay off your smallest obligations first, then apply the amount you used to pay those first debts off with into paying off your bigger ones. The idea is that you gain momentum and stay engaged as you see each smaller debt being paid off.
- Debt Avalanche Strategy: From a number standpoint, a debt avalanche is likelier to pay off debts in a shorter time and save you the most money on interest. This payoff method targets debts with the highest interest rates first. First, add up all the minimums you must pay on your debt, ordered from the highest interest rates to lowest, and then figure out how much extra you can pay beyond the total of your minimums.
6) Run & Understand Your Credit Report
Keeping tabs on your credit is vital to your financial health. Your credit score is what will determine whether you get approved for a loan, as well as what rate you will qualify for. The better your credit score, the better your rate will be, and the better your chances for loan approval. A good practice is to run your credit report annually. You can address any errors or blemishes on your report and monitor your account for fraud. www.freecreditreport.com and www.annualcreditreport.com are two resources where you can access your report.
7) Take Advantage of Employer Benefits
Oftentimes, employers offer great benefits to their employees. Take advantage of these benefits as much as you can. These benefits may come in the form of education benefits, retirement account contribution matches (which is free money to you), low-cost insurance plans, and student loan repayment assistance.
Build Your Retirement Savings & Consider Engaging with a Qualified Financial Advisor
You can contribute up to $19,000 annually in a 401(k) and $6,000 in an IRA in 2019. Workers 50 and over can use a catch-up provision raising these limits to $25,000 and $7,000, respectively. If you can’t max out, at least increase your contribution amount each year. The earlier you start putting money away, the more wealth you will have amassed come retirement time. Much like automating your bills, savings, and emergency fund, automating regular monthly retirement contributions yields great benefits. A financial advisor can not only help you plan for retirement but can also help you with all areas of your financial life. They can provide perspective, insights, tools, and strategies that link all facets of your financial world together. This creates a comprehensive blueprint to help keep you on course toward achieving your goals. Choosing the right financial advisor for you is a very important decision. For help when choosing a financial advisor, read our blog: How to Choose a Financial Advisor: The 5 Questions You Need to Ask.
Every goal or big initiative always starts with taking the first step. View the tasks outlined in this blog as your first step and watch as the pieces of your financial house begin to fit together.
Sources: U.S. News/ Forbes/ Motley Fool/ Nerd wallet/ Debt.com
© Geier Asset Management, Inc. Feb. 2019. Gregory Palacorolla, CFP ® is Director of Wealth Management for Geier Asset Management, Inc., a Registered Investment Advisor. The articles & opinions expressed in this material were gathered from a variety of sources, but are reviewed by Geier Asset Management, Inc. prior to its dissemination. All sources are believed to be reliable but do not constitute specific investment advice. The views expressed are those of the firm as of February 2019 and are subject to change. These opinions are not intended to be a forecast of future events, a guarantee of results, or investment advice. Any advice given is general in nature and investors must consider their own individual circumstances. In all cases, please contact your investment professional before making any investment choices. Geier Asset Management, Inc. is not responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.