Forget all the complicated financial advice - getting ahead financially means spending less and saving more. Here are two ways to accomplish these goals in the coming year.
#1 Reduce Expenses:
Take a Look at Your Mortgage Loan
Since a mortgage payment or rent is typically your largest expense, a regular review of home financing is necessary. Some reasons you may want to refinance or buy a home include:
- Taking advantage of the tax benefits of owning a home
- Building equity in a property as an investment
- Lowering your interest rate or obtaining more favorable terms on a current home loan
- Take advantage of your home's equity to consolidate any high-interest debts
- Converting a risky adjustable rate mortgage to a fixed rate loan
#2 Increase Your Savings:
Invest Wisely
Maximize the earnings on your savings by investing it. Depending on how quickly you might need to access your money, consider these options:
- Tiered Savings - the more you save, the higher your interest rate
- Money Market account - a higher interest rate, but limited access
- Share Certificate - best rates, but restricted access
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Do you ever wonder where your money goes each month? While many overlook the basics of budgeting, you could be on the road to the financial health you deserve with these five success-driven steps!
- Make a List - Sit down with a piece of paper and a pencil and start jotting down your fixed expenses (mortgage or rent payments, car payments, insurance payments, utilities, etc.) and your variable expenses (dining out, movie tickets, clothes, etc) from last month. Total your expenses on both sides.
- Determine what is a NEED and what is a WANT - After looking at the list you just created, where does your money NEED to go? What expenses come first? What WANTS can you remove from the list? Where can you SAVE instead of spend? These are some questions to help you determine a need from a want
- Set Realistic Goals - Now that you have separated your needs from your wants, establish short-term (down payment on a home) and long-term (college savings for your children) savings goals based on your monthly income. By subtracting your needs from your monthly income you will easily see what is left over. This can be your starting point for how much you can realistically save to reach your goals.
- Go! Now that your list of needs/wants is finished, your remaining income is calculated and your goals are set, GO! Stick to your plan. The first month might be hard, but remember, saving for a major purchase can take time.
- Track Your Progress - Constantly evaluate your spending to see if you are on track with your initial goals. You can watch your savings grow with financial services available to you at your credit union. Earn more with high yielding savings accounts, share certificates, money market accounts, and individual retirement accounts (IRA). Plus, it is easy to put money aside throughout the year with direct deposit, payroll deduction, or automatic transfer.
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A Personal Spending Plan Can Help You Survive Tough Economic Times
A challenging economic environment makes it more important than ever to cut back on expenses and build savings. With a spending plan, you will create saving and spending targets and discover ways to reach your financial goals. Here are some ideas from Consumer Credit Counseling Service to get you started:
- Track expenditures. Track your family's spending for 30 days to see where the money is going. You may see that meals out and other indulgences are draining your cash flow.
- Trim spending. Look for lower rates on recurring expenses such as insurance, phone, Internet and checking accounts.
- Watch out for periodic expenses. Mark your calendar and earmark some money for those occasional expenses like vehicle registration, home or auto repairs, medical expenses and birthday or holiday gifts.
- Dent your debt. Increase your monthly payments to get out of debt faster. Adding $10 to $20 more each month to each credit card can have a noticeable impact.
- Set long-term and short-term goals. A short-term goal could be saving for a down payment on a car or home, or creating an emergency fund. A long-term goal could be investing money for retirement or saving for your child's college education
- Evaluate progress and make adjustments. Set a date to review your progress and adjust your spending plan if necessary.
- Utilize financial tools. Software programs like Microsoft Money or Quicken can help you manage your budget. Or use a simple spreadsheet, like the form offered on this site.
- Be patient. It requires more than a casual approach to change behavior. Research indicates it may take 20 repetitions to change a habit. First you must change how you think, then how you act. Think positively about taking control of your finances!
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Tips for Financial Success
By following these simple steps, you can make plans to thrive, not just survive!
Get an Accurate Picture of Your Current Situation
A good place to start is by looking at where you are at and where you would like to be by the end of next year. Financially you can assess your situation by adding up the value of your assets (home, car, furniture, etc.) and subtracting out liabilities (debt) to find your net worth. A simple but effective goal is to increase your net worth by the end of the next year. You may want to break this down into smaller goals such as reducing your expenditures, or increasing your earnings and/or savings by a specific amount each month.
Spend Less
Gather information from your checking account and credit card statements for a rough estimate of how much you spend in categories like food, entertainment, transportation and gifts. If you want a more accurate number, keep track of every expenditure for a month, including small cash purchases. You may want to carry a small notepad to keep track of them. This will give you a good idea of where you can realistically cut back. Then, set a budget, and look for ways to eliminate non-necessities like entertainment or meals out, and save on necessities by utilizing sales and coupons.
Borrow Smart
If you have a mortgage, home equity, auto loan or credit cards, make a list of all your balances and the interest rates you are currently paying. Chances are, you may be able to lower your interest rate and/or monthly payments by refinancing or transferring balances. Visit www.doverfcu.com for a complete listing of all loan rates and a convenient online application.
Earn or Save More
If you find that your spending exceeds income, consider finding ways to supplement your income. For example, a part-time second job, work you can do at home in the evenings or freelance work that can be carried out on the weekend. Another source of income may be to sell unneeded items at a garage sale or through a reputable online service, such as eBay. No matter how much (or little) your income may be, be sure you are setting aside a portion every month in a savings or investment account. Use Direct Deposit or Payroll Deduction so the amount is deducted from your check before you are tempted to spend it.
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A New Year's Resolution with a Big Payoff
Invest some time each year in getting your finances organized, and you will end up saving time and money all year. You will be able to eliminate overdraft and late fees, easily evaluate where your money is going, and save money on taxes.
Keep it Simple
Many organizational systems fail because they are too complicated. One easy way to get started is with an accordion file folder and a calendar or bill payment checklist. Keep track of when bills are due and mark them off on your checklist or calendar as you go. File bill notices as they arrive in the accordion folder based on the date they are due. Online Bill Payment systems are also a great way to get organized because you enter all your bill payment information at one time and can set up future payment dates. Keep tax-related receipts and paperwork in a separate accordion folder organized by category.
Where to Store Important Documents
Consider renting a safe deposit box to store family birth certificates, wills, real estate and tax documents, along with other valuables. Safe deposit boxes are available to Dover Federal members at the offices on Saulsbury Road and North DuPont Highway in Dover. Another option is to store your valuable papers in a fireproof box in your home. Be sure to let another trusted family member know where you are keeping these important documents.
Stay Organized with an Annual Clean-Up
The beginning of each year is an ideal time to file or throw out all financial documents from the previous year and start fresh. Be sure to shred any documents containing sensitive personal or financial information before disposing of them.
What to Save and What to Throw Away
As you get organized for the New Year and for tax season, here are some guidelines to consider:
- Tax returns. Consider permanently storing your copy of completed tax returns. In many cases, the IRS destroys the original returns after four or five years, so you may need your copy to fall back on.
- Canceled checks, deposit statements, and receipts. In general, keep these for at least three years. If a receipt is for something that appears on your tax return (such as home improvements), then keep it with that tax return.
- Weekly or monthly salary statements. These can be thrown away after you check them against your annual W-2 Form.
- Medical Expense Documents. Keep all medical bills for three years to back up your canceled checks.
- Stock trade confirmation receipts and statements. Keep these for at least three years after both ends of the transaction (the purchase and the sale) have been completed.
- Proof of improvements to your property. Store at least three years (preferably seven) after the sale of the property to prove your basis in the property when it is sold. Certain improvements add to the cost basis of your property, thus reducing any capital gains you may have when you sell. This applies to rental properties, investment properties, and even your personal residence.
- Escrow closing documents. Store a minimum of three years after the property is sold. Retain both the purchase escrow and sales escrow statements.
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