“Cheers to a new year and another chance for us to get it right.” –Oprah Winfrey
Emily and Bob sat in the meeting room with a look of utter desperation.
“Here we are again—the bills from the holidays are drowning us and our plans to get a proper hold on our finances! What can we do make sure this never happens again?”
I asked them what getting a ‘proper hold’ of their finances meant to them.
“First, we don’t want to start the year with big January bills. Secondly, we need to see our net worth grow. We want to retire someday and not have to depend on social security. Lastly, we need to feel in control of our money.”
If this story sounds familiar, you aren’t alone. Change starts now: Make this year the one you make important changes to feel good about your finances this time next year. Following are the 5 most important money hacks that will help you start off 2017 on the road to financial well-being.
Money Hack #1: Build Your Retirement Savings
Unless you are maxing out your 401(k), start with your very next paycheck. Begin with a ONE PERCENT (1%) contribution and increase your contribution by ONE PERCENT (1%) every other paycheck until you have reached SIX PERCENT (6%) of your salary. Remain at SIX PERCENT (6%) for two months and then begin to increase by ONE PERCENT (1%) every month until you reach maximum. Making small changes that don’t feel overwhelming is an effective method of building great habits.
Yes, but, where is this money coming from?
Money Hack #2: Manage Your Money—Don’t Let Money Manage You
You deposit your check, pay your bills, and hope there’s enough left over to save. How’s that working out for you? Here’s something to consider: Compute the total of your monthly fixed costs (rent, mortgage, loans—everything monthly expense). Subtract that amount from your net paycheck. Now, subtract the ONE PERCENT that will go to your 401(k) from the remaining amount after the monthly expenses are accounted for. The leftover amount can be used for your other expenses and savings if your budget allows. Remember: Pay your must bills first, then your retirement, then all other expenses. If that amount is tight, it’s time to make some choices. Each time you increase your retirement contribution, you will have to decide what small shift needs to be made to accommodate your savings.
Not sure where to make changes?
Money Hack #3: Valor Is the Better Part of Discretion
Making changes, even small ones, requires determination and courage. Your discretionary spending is more habit than value. You doubt that assertion? OK, list all your non-fixed expenses. For example: • Vacations • Eating out • Cable TV • Entertainment • Subscriptions • Gifts • Donations • Travel Complete your own list thoroughly. Next to each entry, rate your spending by priority of value, from 1 (most important) to 5 (least important). Now, eliminate the 5’s and total that amount. Earmark that amount for savings.
Money Hack #4: Supercharge Your Savings
Every dollar of contribution into a retirement plan creates a tax savings. Quantify that savings and add that to your savings, investment, or debt retirement account.
Money Hack #5: Eliminate Credit Card Debt
If you are not paying off your card balance in full each month, it’s time to get off that broken track by going on a money diet. Here’s how: 1. Take the card(s) out of your wallet. If you have to carry a credit card, put it in a separate place in your bag, briefcase or carryall. Ideally, leave it home, but at least get it out of your wallet. 2. Total your credit card balance and divide it by the number of paychecks in the next four months. If you get paid twice per month, you are going to pay 1/8th of the balance each paycheck. You will shut the door on all spending other than what is absolutely mandatory. 3. By changing what has become normal, you have the opportunity to examine the “why’s” behind your decisions. 4. Going forward, commit to spending no more than what is available in your account to pay.
Creating a vibrant, meaningful and in-control money life is within your reach. Making these changes may be uncomfortable at first, but how will you feel next January when you are celebrating the turning of the new year without the bills hanging over your head, your net worth building, and the feeling of control and accomplishment? Pretty darn good, huh? Here’s to you and your chance to start anew!