The new year is getting underway and now is the time to evaluate your financial goals for this year and beyond. Making efforts to improve your financial situation today can set you up for a strong future.
Set a Savings Goal
According to an American Psychological Association survey, 62 percent of Americans feel stressed about money issues. Breaking down the data further, the APA found that:
- 34 percent of respondents are concerned about unexpected expenses.
- 30 percent stress over retirement savings.
- 25 percent worry about paying for everyday essentials.
One way to tackle these stressors is to build a nest egg. This will be your safety net when an unpredictable expense comes your way – like your car breaking down, your partner getting laid off or your child getting sick.
However, setting a vague New Year’s resolution like “save more” isn’t the way to set yourself up for success. Instead, define your savings goal and list out what objectives will get you there. Many financial advisors advise consumers to have an emergency savings account with three to six months’ worth of living expenses. This way, if you are let go from your job, you’ll be able to continue paying for rent, utilities and groceries while you find your next opportunity.
Evaluate how much you can afford to set aside from each paycheck. Then, arrange with your employer to have this amount of money direct deposited into a dedicated emergency savings account. This step is important – having the money accessible, but not easily so, will prevent you from dipping into your reserves accidentally or “just this one time.” Opening a new savings account can help with this; reach out to Bank Midwest to learn how to do this.
If you can’t get a portion of your paycheck automatically deposited into your dedicated savings account, you can do this easily using a mobile banking app.
Start Planning For Retirement
When you’re growing your career, it’s hard to imagine retirement. It may seem like it’s ages away, but it’ll be here quicker than you think. And, unfortunately, the majority of Americans are ill prepared for their departure from the working world.
According to data reported by the Economic Policy Institute, only 51 percent of families age 32-37 have started saving for retirement. This means that 49 percent don’t have anything saved at all. This figure increases with age group, but even older Americans are lacking. Just 61 percent of families age 56 to 61 have started saving for retirement.
It’s important to start planning today; your future self will thank you. If your employer offers a retirement savings plan, like a 401(k), that’s a good place to start. If they offer a match, take advantage of it; this is free money.
If your employer doesn’t have this perk, or doesn’t offer a match, explore other options. Individuals can take out their own IRAs, which are excellent for retirement planning.
Create a Budget
Many consumers enter the new year wanting to spend less money, but don’t know where to start. Luckily, we do: with a budget.
Creating a budget isn’t the most fun way to spend an afternoon, but it can be an incredibly helpful tool to help cut down spending next year. Here’s how to craft one that works for you and your goals:
Define Your Goals
The first step is to determine how you want to spend your money, not just in 2018, but over the next two, five and 10 years. Do you want to buy a house? A car? Earn a new degree? Start a family? These life experiences all cost money; start by determining how much you’ll need.
Consider Your Income
Next, you’ll need to look at how much money you have to work with – in other words, your income. In a blank spreadsheet, list how much money you make in a year – that includes your paychecks, your bonuses, your dividends and any other forms of income you bring in.
Calculate Your Expenses
After you know what you want to buy and how much money you have to work with, you need to consider your expenses. These include your rent or monthly house payment, any debts you pay, utilities, food, car payments, contributions to your savings accounts and anything else that’s necessary. Everyone’s expenses will be different. New parents will need diapers, while a business owner will need office supplies.
Also, don’t forget to leave off things like birthday or holiday gifts, travel expenses and the like. It’s easy to overlook these items, but they’re important to include in your budget.
Evaluate the Results
Now, subtract your expenses from your income. If you have a positive dollar amount, congratulations! This is all money you can save (or spend) as you please. However, saving your surplus will help you meet your financial goals quicker.
If you wind up with a negative dollar amount, take some time to evaluate where you can cut costs. Can you find a cheaper cell phone plan? Can you cut back on travel next year? Find areas you can eliminate or minimize.
When cutting expenses, be careful not to go overboard on certain things. If you have too strict a budget for fun things like a birthday party or a night out with your friends, you’re less likely to stick to it, Forbes contributor Liz Frazier Peck pointed out.
Whatever your financial goals are for 2018, Bank Midwest is here to help. Feel free to reach out to our team and ask how we can help you meet your financial goals.