8 Essential Financial Tips
1. Change how you think about wanting vs needing.
Sometimes it feels like everyone else has better things. We see posts about clothes, cars, vacations, concerts, etc., and it’s easy to feel left out. When you want to spend money, take a minute and ask yourself, “Is this a need or just a want?” Needs are impossible to live without: shelter, essential food and basic clothing. Do you need that venti mocha or can you make coffee at home? Do you need a phone with the best camera or is your current one fine? Our culture can feel like it’s focused on consumerism. Be mindful, don’t just buy more things because they’re there.
2. Live by the 3-day-wait rule.
Ok, so if you decide you want something, here’s an easy tip; wait at least 3 days before buying it. This can help eliminate impulse buying and after the waiting period ends, you may find out you really didn’t want it that badly. But if you do decide you want it and need to purchase it, that’s ok too… but only if it’s in your budget (see below).
3. Make a budget.
Take a deep breath. Everything is going to be ok. Don’t be scared of facing your financial situation. The truth of the matter is that if you don’t understand where your money is going, you may as well be giving it away. A budget isn’t as intimidating as it sounds and it’s the only way you’re going to know when it’s ok to spend money versus when to save money. Seeing it all on paper (or online) will help you take control. It can seem like a big step if you’ve never done it before, but once you’ve taken that initial leap, it feels great to get a handle on your finances. If you need help with budgeting there are many available apps, spreadsheet templates, and software programs, or feel free to talk to one of our personal bankers. Although this tip is listed as number 3, you really need to address it before setting any other financial goals. And don’t forget -- we are here to help you!
4. Think about paying with cash.
Basically, if you can’t afford to pay for products and services right now, you shouldn’t buy them. According to Experian.com the average American credit card balance is $6354. Let’s take that number and say the annual percentage rate (APR) on your card is 13%. If you put $100 per month toward your bill, which is more than the minimum payment, it would take over 9 years to pay off your balance. And at the end of those 9 years, you would’ve paid almost $4500 on interest alone! (And let’s not even talk about what happens if you can’t make a payment and they bump your interest rate to 29.99% as a penalty.) Save yourself from the trap of credit cards and don’t use them unless you can pay off your entire balance every month. No minimum payments. No procrastination.
But what if you’ve already got credit card debt? First of all, don’t give up. There are manageable steps you can take to improve your financial situation. The first one is to seek a copy of your credit report. You’re entitled to one free annual credit report (not credit score) from each of the three credit reporting agencies. It’s a great way to know how many cards you have open under your name and get an idea of the balances on each one. It also gives you a good starting point for comparing your improvement at a later date.
Next is to either pay off the cards entirely or to seek lower interest rates or other solutions. We’ve got a great Visa card with lower-than-average interest rates that might help lower your payments and consolidate debt. You might also consider a home equity loan if you’re a homeowner. There are many options available to you. If you don’t know where to start, talk to one of our personal bankers. We really are here to help you.
5. Pay yourself first.
After you create a budget and know what you should be saving, stick to it. (This is back to step 3!) Pay yourself first. Put the money into your savings account before anything else. Don’t make an extra payment on your student loan; don’t go shopping; basically, don’t steal money from your own bank account by not putting it where your budget says it should go. And don’t wait until the end of the month. Make your “future self” a priority. Your savings matter!
6. Set up a 3-month emergency fund.
After you understand wants vs needs (step 1) and you’ve got a budget (step 3), you’ll know the dollar amount of your essential monthly expenses. Remember what you need as far as products and services such as utilities, rent, transportation, etc., and save enough money in an emergency fund to cover three months’ worth of these items as a safety net. It can be a checking account or a savings account. Just remember that it needs to stay there as a cushion. Some financial advisors may even tell you this is step 1. It’s not glamorous, but life can be unpredictable. And in case of a lost job or unforeseen happenings it’s better to be prepared than to be in a predicament.
7. It’s never too early to invest.
The sooner you start, the more you can earn. Investing money in an interest-bearing account is a key part of growing your savings. We offer several types of accounts that pay interest, so talk to us and find out which one might be right for your goals.
Compounding interest is almost magical because it makes money from money. It works like this: If you have $1000 in an account and it earns 10% per year, at the end of one year you’ve earned $100, making the new balance $1100. When your interest compounds the following year, you’ll earn interest on the new balance, which may not seem like much but over time can add up. If you left that $1000 alone for 10 years at an interest rate of 10%, it would be more than doubled. And if you make regular contributions to the account, even small ones, the savings add up faster. The earlier you begin, the better.
8. If your employer offers a retirement program, do it. Now.
Many employers offer a 401(k) or similar plan and will match your contributions up to a certain amount. That’s free money. Take advantage of it! Be sure to contribute up to the amount they match. The money is usually taken out via payroll deduction (so you won’t even have to set it aside) and it’s not taxed until you withdraw it. Total win.
These financial tips will help you take control of your money and feel more confident about your financial future. You can do this! Check out our blog for more helpful articles, call us, or visit a branch to get started. We’re Creating Possibility for you!