Smart Financial Moves To Make This Year
Now more than ever, it’s important for individuals to responsibly put a plan in place to secure their finances. Not knowing what the future brings can be stressful. However, getting started and being proactive will help you worry less about your financial security down the road. Although you can’t see the future, you can start doing your due diligence by understanding your options, upping your financial literacy game, and putting safeguards in place. Below are three smart money moves to make this year.
Set Personal Spending & Borrowing Caps
It’s important to set boundaries when it comes to your money. Doing so will help you stay within your budget and prevent you from going down a trap of a “spend now and pay later” mentality. It’s essential that you stay cognizant of this, as you could potentially rack up debt quickly, leaving you with too many bills or installment payments you could get behind on. You should not only keep your spending in check, but your borrowing too. It’s crucial to borrow responsibly and know what options are available. Whether you’re borrowing money from a family member, a bank, or a private lender, it’ll come with its own terms and conditions.
A loan from a lender comes with its own terms as well. Take precautions when you need to borrow for something expensive. This includes not only knowing you can handle costs associated with big-ticket items, but also knowing you can balance them in your existing budget. For instance, when you go to buy a home, be sure to weigh your choices carefully. Something like a 15-year fixed home loan may be a great option for those looking to not only save money in the long term, but to pay off their debt quickly as well. On the other hand, a loan with longer terms may be a better option for those who need a lower payment monthly. It’s important to understand how borrowing money will impact your bottom line, no matter how you go about it. Therefore, setting both personal spending and borrowing goals, as well as understanding your debt-to-income ratio can help you stay responsible with your money.
Consider Paying Off Debt
Understanding financial management, and paying off any debt that you may have, are great ways to become more proactive about your financial state and your savings. While it’s important to have a good savings plan in place, you don’t want to let paying off any outstanding debt fall by the wayside. When paying off debt, you should first start by figuring out how much debt you currently have and what type of debt it is, whether it be revolving loans or installment loans. Making note of any current debt that you have is essential to ensure that you don’t wait too long to pay it off. Having overdue debt can lead to financial issues in the future such as damaging your credit as well as cause issues if you have an outstanding balance on your mortgage. Depending on the type of debt that you owe will dictate how you go about paying some of your debt off. There are many ways to pay off debt, but two popular methods for paying off debt include, the snowball method and the avalanche method.
The snowball method consists of paying off the smaller balances first before moving to the larger balances, which can allow you to stay motivated and consistently pay off your loans and move to the next. The snowball method takes into consideration the amount that you owe rather than interest rates. The avalanche method starts with paying off the highest interest rates, rather than paying attention to the amount you owe. This method may take you longer, but you’ll get out of debt paying less interest than the debt snowball method. Understanding how much you owe, and creating a plan to pay any outstanding debt off, will help you to become more in tune with your finances and improve your overall financial literacy.
Start Retirement Planning Early
It’s never too early to start planning for retirement. Even if you think retirement is far off, taking steps now will help you to have the funds you need later in life to live comfortably. Seek out financial resources, some great places to start would be to talk to a family member for recommendations, check out online resources, or your HR department may even have a financial partner for assisting employees with their retirement needs.
Additionally, employee resources may have handbooks that can help direct you on how to invest and take advantage of your retirement options. Read and talk through things like your retirement goals to help you choose the best target date fund for a 401K. Having a retirement date goal will make it easier for you to manage your current spending and saving limits that work for your lifestyle. For instance, if you find that you comfortably have funds left over, opening an additional account by growing your money through index funds, may be another solid option for your retirement plan. The bottom line is, having a good grasp of how to direct and manage your money will help you to pay for expenses later on in life. Keep the mindset of making your money work for you. Doing so will allow you to master not only money management, but also help you to improve your financial status over time.
Knowing how to improve your finances will help set yourself up for a more secure future, as well as allow you to continually learn new ways to improve your financial state.