5 Steps to Improve Your Finances by the End of the Year
Even if the path of your financial health has been more like a cha-cha than a waltz, it’s not too late to get back on track. Despite a bad track record, setting yourself up for long-term financial success is not impossible. It just takes some dedication to reverse bad habits and formulating a solid saving and spending plan. Here are a few steps you can take to start saving more and improving your finances by year’s end.
Stick to a budget
Before you do anything else, first and foremost, you need to set your budget. It needs to be realistic and more importantly, you need to stick to it. One of the biggest contributors to debt is, unsurprisingly, overspending and the use of credit cards. This may seem obvious, but if you don’t have the cash to cover a credit card purchase, then you shouldn’t be making the purchase to begin with. Credit cards should not be used for layaway; it’s too easy to rack up a balance with high interest. However, it’s true, emergencies do happen, but you need to be honest with yourself here. A trip to Vegas isn’t an emergency. If there’s a high-dollar item you’ve been eyeing, go old school—save! But if a purchase becomes truly critical, look to your savings first, or better yet, an emergency fund. Which leads us to our next step.
Life happens and things crop up. Whether it’s medical expenses related to illness, maintenance issues or even the loss of a job. Creating an emergency fund can help take the stress out of financial surprises. An emergency fund should function just like a savings account, except, for emergencies only. This way your regular savings account can be kept for things like buying a house or retirement, while your emergency fund acts as a buffer for instances such as needing a new transmission or a roof repair. And while your regular savings account should have higher priority, you can start by automating a small transfer each month into your new emergency fund. It could even be just fifteen to twenty dollars. Anything’s a start, and you’ll likely find having another pool of money to access when surprise expenses come up will provide a lot of relief.
Whether it’s a bucket list trip to Greece, that little red, two-door coupe, or knowing you won’t have to worry about income when you retire, it’s important to set specific and track savings goals. These goals shouldn’t just live in your head. Start a journal specifically for savings. Put it all down on paper and include all the details of each goal, such as the total amount of money you want to save when you want to save it by, and what it is exactly you’re saving for. There’s also plenty of money saving and tracking apps out there that can help support. It’s been shown that creating specific savings goals and tying them with an action plan is proven to be much more successful than the idea of general saving. Why? For one, saving for something tangible is more motivating. It makes sense; putting money towards something you really want becomes more rewarding because you better understand the value of the action.
Automate everything you can: bill pay, loans, rent, and savings transfers—everything. Life gets busy, and with all our day-to-day responsibilities it’s too easy to let something slide. Whether that something is saving a few extra dollars each month or a credit card payment, it can have huge future impacts. You don’t want late fees to stack up, or find you’ve gone months without setting money aside. There are hundreds of online tools and apps you can access to help support your financial requirements. Not to mention nearly all banks have online bill pay that will automatically send payments to external accounts, such as electric companies or universities. So make sure to get those recurring transfers to your savings and emergency accounts set up as well as your bill pay cycles, and before you know it you’ll be saving like a champ.
If you find yourself in a situation where your debt is just impossible to tackle, consider loan forgiveness programs or look for jobs who offer to pay off student loan debt. If all else fails you may want to consider a cancellation of debt. What is this exactly? Some lenders will allow borrowers to negotiate a cancellation on debt owed. However, when taking this route, borrowers need to understand there are tax repercussions. When you take out a private loan the proceeds are not reflected in your yearly income. The lender takes those on for the duration of the loan period. However, when a debt is canceled, the responsibility falls back on the borrower. Typically when a cancellation of debt occurs, the lender reports the balance of your debt to the IRS on a form called the 1099-C. You may also receive a copy of the 1099-C, or you may not. Either way, it’ll still be tied to your financial history and record, and depending on the type of debt owed, different stipulations and requirements apply, so you may want to consider getting a good accountant who can help walk you through your options.