Is getting your finances in check one of your new year’s resolutions? If so, you can join 53% of people who made the same resolution. Tackling your finances can get overwhelming quickly, from deciding what debt to pay down to where to invest your money.
Determining your goals, paying down debt, building up your savings, and investing extra money are four areas to consider when it comes to overcoming personal finance challenges going into the new year.
Determine Your Goals
The first step in overcoming your financial challenges is to determine your goals. With no concrete plan on the areas of your financial situation you want to improve, you won’t see high success rates. Write down your goals, as studies show that people who take the time to write down their goals are 20% more successful in achieving them.
Pick both short-term and long-term financial goals. Maybe your short-term goals include paying off one credit card, while your long-term goals entail paying off your mortgage or car loan. Make sure your short-term goals are reasonable. You shouldn’t write down paying off a $20,000 credit card bill in one month.
Pay Down Debt
Some of your goals might include paying down debt. The average debt of an American citizen is $96,371. Does that surprise you? There are a few different strategies you can use to pay down debt, including:
- Smallest Debt First – This strategy involves paying off the lowest balance first.
- Highest Interest Rate – This strategy focuses on paying off the debt with the highest interest rate, which is usually credit cards.
- Equal Pay Down – This strategy involves paying down each of your debt streams in proportion.
Whatever method you choose, it’s important that you still make the monthly payments on your other obligations.
Build Up Your Savings
Instead of putting all of your extra money toward paying down debt, you should be building up a savings account. The general rule is to have at least of six months of expenses in an emergency fund, which is usually a savings account. Although it may take some time to build up these funds, it’s important to start working toward in case an unexpected cost or job loss occurs. One way to start building up your savings is to have a portion of your check automatically deposited into a separate account.
Invest Extra Money
Once you have created an emergency fund and paid down your debt, you should begin investing extra money. Traditional savings accounts come with low interest rates, usually under 1%. This means your money is not working for you. Instead, you should be investing in the stock market, high yield savings accounts, and other avenues. This can help grow your wealth. Consider talking with a financial planner about which investment avenues are right for your situation.
Overcoming financial challenges can seem daunting at first; however, taking control of your finances leads to greater pride, less stress, and wealth accumulation. For more tips and tricks on how to rework your finances, reach out to one of our team members today.