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July 8, 2020
In times like these, it’s a big relief to know you’re on the right financial pathway, making sure your money habits match your financial goals. If you’re not feeling great about your situation, that’s okay – start your journey today. Here are four steps to improving your financial well-being.
1. Know Your Numbers
Before you can determine which areas of your financial life are going well and which may need a tune-up, it’s critical to have a solid idea of where you are today.
Do you currently walk around with a lot of cash? Having cash in your pocket makes it easier to spend and much harder to track. If you don’t currently have a bank account, we recommend you open a checking account today. Not only will you get a debit card that can be used anywhere Visa is accepted, but you could also earn interest on your money. That’s free money, just for keeping your cash in a checking account rather than your pocket. And, you’ll always know exactly how much money you have available with online banking tools.
Once you’ve opened a new checking account, dive into Money Manager. This free feature lets you view and manage all of your accounts in one place, including those you might have at other banks or financial institutions. You can also build a budget, categorize your spending, and set up spending alerts. As you begin to learn where your money is going, you can further improve your cash flow by calling your lenders and asking them to adjust your bill due dates. That way, you can spread them across multiple paychecks.
Next, review your credit. Your credit report can help you gauge your financial picture from a lender’s perspective. It’s up to you to make sure it’s accurate – that means that there are no discrepancies, errors, or accounts you didn’t open. Federal law gives you the right to one free credit report from each of the three nationwide credit reporting agencies each year. Given rising financial concerns and increasing fraud schemes due to the Coronavirus pandemic, the three major credit bureaus are offering free weekly credit reports through April 2021.
2. Reduce Spending
As you track your spending, you might notice that you’re spending more than you intended in certain categories. Don’t worry – you’re not alone. Things like eating out, entertainment, and streaming services are common budget-busters. Now it’s time to trim the fat and start planning to live on a budget.
Over the next month, be diligent about using Money Manager to track spending and see where your money is going. Ideally, you’ll want to track your spending over three months, as you may have different charges each month.
Next, look at what spending can be eliminated. Note the essentials first – things like housing, utilities, food, and transportation costs. You need all of those. As you’ve categorized a month’s worth of spending, have you found unused subscription charges on your account that you should think about cancelling? A gym membership that you never use? Maybe that can go too. The goal is to align your spending with the amount of money you have coming in each month.
There may be a point at which you’ve trimmed all the unnecessary expenses but need to cut even further. With interest rates as low as they are today, refinancing your current loans (like car loans and mortgages) could lower your essential payments and give you extra cash to use elsewhere in your budget.
3. Start an Emergency Fund
Murphy’s Law says that anything that can go wrong will. At one time or another, we’ve all faced an unexpected home or car repair, bill, or even job loss. That’s where having an emergency fund can help you keep from blowing your budget.
Recognize that this is an emergency fund; it’s not a rainy-day fund or a typical savings account. Any money you put into your emergency fund should be used for emergencies only. Weekend getaways or spotting things on sale that you’ve wanted for months are great, but they’re not emergencies.
Here’s how to begin:
- Open a second interest-earning account, and be sure it’s fee-free. This is going to be for your emergency fund. You can choose from checking, savings, and money market accounts.
- Start with a goal of setting aside $100 in your new account. Then, stretch your goal slowly to $200, then $500, and, finally, $1,000. If you adjust your budget to put just $20 each month into your emergency fund, it will pay off in the long run. You can even save automatically by having money transferred to your new account through an automated transfer or by direct deposit every time you get paid.
One last thought: you may want to consider limiting the convenience of accessing your emergency fund account. This may make it harder to splurge, which could wipe out your fund for something that’s not an emergency. Don’t worry, it’s easy to transfer emergency funds via online and mobile banking when you need them.
4. Pay Down Debt
Once you’ve created your budget, you’ll be able to get a good idea of how much of your monthly income is going toward repaying debts. It’s time to put together a plan to get rid of those debts, because the interest you’re paying on them is taking a chunk out of your income and savings potential.
- First, document every debt you have so that you can see them all in one place. Be sure to write down how much you owe, your minimum monthly payments, and the interest rate you’re paying for each loan.
- Next, determine your “plan of attack.” Two basic strategies have been successful in helping people reduce debt: paying off your smallest balances first (the “snowball” method) or focusing on those with the highest interest rates. Choose the plan that’s going to work best for you, and stick with it – they both work.
If you need a little help figuring out how to pay down debt, we’re here for you. The debt management counselors through BALANCE can help you create a Debt Management Plan (DMP) that fits your financial needs. The plan has helped many of our members save money, pay off debts, and move closer to their financial goals. To speak with a counselor today, 1st United members can call (800) 777-PLAN (7526).
5. Save for Your Best Future
Once you’re living on a budget, paying down debt, and have an emergency fund, it’s time to focus on the future. Picture yourself 10, 20, or even 40 years down the road. What will you need money for? Whether it’s a quiet retirement or vacationing during your golden years, today’s plan can help make tomorrow’s dreams come true.
Visit Retirement Central for practical ideas you can put in place today to help you achieve financial security in retirement. Here are two we really like:
- If your employer offers a retirement plan, such as a 401(k), that’s great! Restructure your budget to have a little money transferred automatically from each paycheck. Some companies even match a portion of what their employees contribute. If yours does, try to take advantage of the match – it’s basically free money!
- An Individual Retirement Account (IRA) lets you contribute money annually based on what you’ve earned or up to IRS-established limits on age and income. There are two kinds of IRAs: Traditional and Roth. Both have their advantages – the most significant difference is when your retirement funds will be taxed.
We’re Here to Help
Thanks to our partnership with BALANCE, a financial education and counseling service, you can easily get started with building a budget that works, managing debt, and improving your financial well-being, even during a pandemic. For more info, chat with us, send us an email, or give us a call at (800) 649-0193 to let us know how we can help.