The top money goals include paying down debt and saving more. Follow these tips to make your goals become a reality.
Money Goals #1: Pay Down Debt
People go into debt for number of reasons. The bottom line is that their expenses exceeds their income. When this happens, the least resistance is to borrow money, which comes in the form of credit cards. Why do people go into debt in the first place?
Lack of Discipline
The most important skill to make money is discipline. If you can’t control your spending habit, you will not be able to save money and therefore invest. Spending goes beyond your income and you have to borrow to spend more. This is where the credit card comes in. If you can’t pay off your credit card bill each month, you are essentially borrowing money in order to spend.
Solution
I have to admit, this is the hardest one. I believe you either have a “spender” or a “saver” gene. Starting with small actions as asking yourself, “Is this a need or a want” and postponing buying for 24 hours may help. Then keep pushing yourself a little further.
Keeping Up With the Jones
If you have friends with nice houses, cars, clothes, purses and spending habits, you’re going to want to do it too. After all, we’re only human. However, this can spiral into a detrimental financial tragedy for you if your income can’t keep up.
Solution
You can spend less if you care less about what others think. All women fret when they’re getting ready for a party. I say, “They’re not looking at you for they’re more concerned about how they look.”
Poor Money Management
If you don’t know what’s coming in and what’s going out each month, you’ll spend more than you earn.
Solution
You need to learn to budget. For an entire month, write down on a spreadsheet what you spend down to the penny. Add your expense that you spend periodically such as Christmas and birthday gifts, property taxes, car and house insurance. You’ll soon find out your expense is more than your earnings. Although you can’t easily cut fixed costs such as rent and auto loan, you can cut your discretionary expense such as food, dining out and entertainment.
Necessity
You may have gotten into debt due to necessity. If you lost a job suddenly, got sick, or had an emergency expense and had to rely on your credit card to bridge the gap, you would be in a hole.
Solution
Two-third of Americans can’t cover an $1000 emergency expense. Dave Ramsey started a revolution by saying to save $1,000 for this very reason. Start here then save an emergency fund of 3-6 months of expenses. You may have gotten into a debt out of necessity but that doesn’t mean you can’t learn from it.
Divorce
More than 50% Americans end up divorced and women lose when this happens for men are the breadwinners. Women’s household income falls 41% after a divorce after 50 while men’s household income dropped by only 23%.
Solution
If you’re in this category, you have a compelling reason to learn personal finance, save, and invest for the future.
Money Goals #2: Save More Money
An average American spend $52,000 a year on expenses. If you’re making less than this, spend your time and energy on making more money. Start a side hustle. As mentioned earlier, you can only cut so much since housing and transportation take a big chunk out of your budget.
Solution
Earning additional income through a side hustle can get you to your financial goal faster.
Money Goals #3: Avoid Getting into a Deeper Debts
The primary reason for being in a deeper debt is due to credit card payments. If you have a significant outstanding credit card bill (over $5,000), the chances are that you’re paying only the interest payment. An average credit card interest is between 15%-18%. This means you’re paying $30 per month plus the minimum payment each month or more. Unless you can reduce or pay this off, you’re falling deeper into debt.
Solution
Side hustle and reduce expense. You may have to do something drastic like moving in with your parents (if you can) or find a roommate.
Money Goals #4: Save for Vacations
If this is your only financial goal, you’re in a good position. This says that you’re able to meet the basic needs and is looking to increase discretionary income for luxury such as a vacation.
Solution
Side hustles or cutting your expenses back a little can do the trick. there are a lot of inexpensive vacation opportunities. Driving to a national park and camping will cost you very little and the memories you’ll create has no correlation on how much you spend on vacation.
Money Goals #5: Start a Retirement Account or Contribute More
Starting a retirement account takes less than 10 minutes. I recommend you open a Roth IRA through a brokerage firm (Fidelity, TD Ameritrade or Vanguard) and transfer some money. Invest in an index fund or a target-dated fund. You can do an automatic transfer each time you get paid. You would be dollar cost averaging and this is one of the best ways to save for retirement.
A lot of people contribute to their retirement by contributing minimum (5-7%) to get the maximum employer match. After some time, they have been getting 2%-5% raises but haven’t increase their contribution.
Solution
Contribute half of your raise to the retirement fund and spend the other half. Do this each year. Strive to save 20%-25% of your total earning and it’s a sure way to have enough savings for retirement.
Final Thoughts on Money Goals
Avoid credit card debts at all cost. You can use your credit card for points, etc but pay it off each month. If you’re in a position when you cannot do this, use cash.
Earn more than you spend. If you earn more, you can spend more. It’s a way to keep a balance of saving for a vacation, retirement without sacrificing too much. You can find awesome ways of traveling on a low budget. Alternatively, get a higher paying job or work on a side hustle.
Do an annual net worth statement. This will force you to make sure a your financial portfolio is growing compared to last year.
Write down your goals. Read it at least once a day before you go to sleep. It will work wonders and seep into your dreams and help you actualize it.