Whether it be paying off a student loan, putting away more money towards retirement, or shopping around more before making a large purchase, we have come up with 4 ways to improve your financial situation this year.
- Set a realistic goal.
In the past, I have found that it is easier to keep a resolution if I understand the goal, why the change I plan to make is needed, and whether the goals were developed by me or if they are being imposed on me by someone else. Then using your budget and adding up the totals for income and outflow, figure out where there is opportunity for fine tuning. Figuring out what is a reasonable amount of money to spend is difficult, but use these guidelines on money allocation from Forbes (all figures are a percentage of your gross income):
- 50% Living expenses and other essentials (rent, utilities, groceries and transportation)
- 20% Financial goals (savings, retirement, investments, paying off debt)
- 30% Flexible spending (things you don’t need, but want – entertainment, traveling, etc.)
- Eliminate needless costs.
Look for the small savings – while they won’t solve your financial problems, they’re easy to find and helpful in terms of seeing quick results. For instance, cutting out that $4 latte you buy on your way to work, will save you $20 a week, $80 a month, or up to $960 a year.
- Have a plan for unexpected income.
If and (hopefully) when you have a windfall – a gift, an inheritance, or a larger bonus than you were expecting – use the rule of thirds, for the past, present, and future. For example, use one third for expenses incurred in the past, such as paying down debt. Apply another third for the present, by making a purchase for something you would like now. Lastly, use the last third for the future by saving it or investing it in a retirement fund. By implementing this rule, you will see your debt shrink, have a little something to enjoy right now and see your savings increase.
- Improve your credit score.
Your credit score influences whether you will have access to credit, loans, and the interest you pay. By improving your credit score, you improve the chances of getting favorable loan terms and lower APRs on your credit card.
The first step is to find out what your credit score is, you can do this by requesting a copy of your credit report from each of the three major credit bureaus. Review the reports for any errors and dispute them. Pay off balances you may have forgotten about – you will be surprised how small items on your report are affecting your credit score. Other ways you can increase your credit are to avoid new credit card applications, avoid new credit card purchases by paying in cash, or paying off a debt.
Remember, that as important as it is to have realistic goals, it is just as important to have a plan for the setback you might encounter.