If your end-of-year musings find you kicking yourself for not being in a more secure financial position, now is the time to plan. Here are five steps you can take to make you more secure in December 2016.
Review income and spending. It’s difficult to plan to do better if you don’t know what is going on now. Most of us know how much our income is, but there is usually a big difference between what you make and what you net. Social Security, retirement, income tax, health insurance and other deductions reduce the amount you are paid by as much as 25 percent to 40 percent. That’s the first lesson. Base any spending on your net income, not your gross income.
When you take a look at the net, if it seems to be lower than what you are spending, look for ways to increase your income. That might be a side job, extra income or even selling items you own that you may not need.
Next look at your spending. It may take a little while with your calculator, bank statements and credit card bill, but it is essential to figure out where your money went in the last year. Most of us spend more than we think. Figuring out what you spent it on is the best way to change your future.
Pay down debt. Not only does debt weigh you down, it also obligates future income. Start with the most expensive (highest interest rate) debt and pay it first. Then move down the list to less expensive debt. In general, credit card debt is the one that is the most expensive. Get rid of it and it leaves more money to put toward other obligations that will make you more financially secure. Always pay more than the minimum on revolving credit, even if you can only afford to pay a few dollars more.
Create a plan. Let’s call it a spending plan rather than a budget. Budget is so negative. Go back to the examination of your spending from the first step. Look at where your money went last year, then ask yourself if that is where you wanted to spend your money. Divide the totals by 12 to come up with a monthly amount, then reduce or add to the amount to make it fit your needs. Live by this spending plan during the next year.
Start saving. Set up an emergency fund. Though experts tell us to have three to six months of expenses in the bank, this is an intimidating number. Start somewhere and build up over time. Start with a small goal and when it is achieved, move the bar higher. The average cost of a financial emergency is $2,000, so get that much money in the bank. If you want to have this amount in the bank by the end of the year, save $160 a month or $40 a week. It might be easier to think of saving $6 a day. Simply forgo that fancy coffee or that beer after work, then save that amount of money. Put it in an inconvenient place so it will be hard to spend it. Before you know it, you’ll have the money in the bank and, more importantly, you have established a savings habit.
Make it easy. Automate your savings and your spending. Most bank accounts allow you to set up bill pay so you avoid any costly late payments. Automatic withdrawals can help you start and add to the savings account. If it happens automatically, you will be far more likely to have something at the end of the year.
An insecure financial situation is fixable. You just need to take small, positive steps and stay the course. Start now to change your future.
Roxie Rodgers Dinstel is associate director of Cooperative Extension Service, a part of the University of Alaska Fairbanks, working in cooperation with the U.S. Department of Agriculture. Questions or column requests can be e-mailed to her at firstname.lastname@example.org or by calling 907-474-7201.