As the holiday season heralds in resolutions for the new year, here’s some critical information to remember as you pursue your financial goals.
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Each year, about three in 10 Americans declare their New Year’s resolutions, 61 percent of which regard personal finances. As prices continue to rise across the modern world, many of us have become much more concerned about obtaining or keeping jobs, going into debt, and spending too much money.
If you’re among the countless people who suffer from surprise medical expenses and ominous car engine lights, you may be looking for the best ways to handle all these costs. Managing your bank account can be complicated. That’s why we’re outlining some of the simplest ways to take the reins of your financial independence.
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Consider a New Budget
If you haven’t created a budget already, observing a general 60/30/10 rule might be the best place to start. This rule suggests designating 60 percent of funds toward inevitable expenses such as rent or energy bills, 30 percent toward savings or emergency funds, and 10 percent toward leisure, recreation, or dining out.
There’s no magic to this strategy apart from it being fairly conservative. Maybe you only need 50 percent of your funds for routine expenses, in which case you could put 40 percent toward savings and keep the remaining 10 percent for, say, a new computer.
Note that a flexible budget you can stick to is better than a conservative strategy that falls by the wayside, so don’t be afraid to make further adjustments as the year progresses. One has to start somewhere.
Build an Emergency Fund
Consider starting an emergency fund for medical expenses, car fixes, or potential unemployment. Your goal might be to set aside enough to sustain you for three to six months. The best way to go about building this fund gradually is to make automatic transfers to another account with every paycheck you earn. That way, you needn’t depend on willpower to avoid spending emergency funds.
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According to Next Gen Personal Finance, a journal that discusses strategies for young people to enjoy greater financial independence, spending less and saving more are two of the most essential goals for those living on their own for the first time. Establishing an emergency fund helps to achieve both.
Reduce and Avoid Debt
The best way to deal with debt is to avoid accumulating it in the first place, but the second best option is to pay it as soon as possible without turning your entire life upside-down. Not only does debt deplete monthly income, but it can also influence whether a financial institution approves you for a loan or credit card.
If you’re overwhelmed by multiple debts from different sources, how do you get your life back on track? Sticking to strategies on which others have depended can make the process of paying off debt much smoother.
When it comes to credit cards, for example, you could observe the “Debt Snowball” strategy and pay off your lowest balance credit card first. Then, you’d move on to the card with the second-lowest balance, and so on. Whichever strategy you choose, most revolve around reducing a monstrous debt to bite-size pieces.
We hope our suggestions seem doable! Entering the new year with a plan for your finances is better than no plan at all, and we wish you luck with your financial resolutions in the upcoming months.
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Title Image: Micheile Henderson, via Unsplash
