By Kimberly Carlson
Congratulations! You survived 2013 and all it had to offer: pay cuts, job losses, medical expenses and–most recently–the holidays. Time for a new year and a fresh start. Where do you go from here?
Here we are in January, looking at holiday credit card bills–knowing that tax season looms ahead and wondering just how we’re going to make good on our New Year’s economic resolutions. Like many of us, you’ve probably already decided that this is the year to get a handle on your finances. You aren’t alone. Financial resolutions rank number seven on usa.gov’s website under their “Top Ten New Year’s Resolutions.”
Past: Sit down and take a good look at your finances. Look for patterns in your spending habits that can be changed and change them.
Start by taking a look at where your money has already gone. It may sound elementary, but create a list of your monthly outgoing expenses. And don’t shirk! Include those lattes and ballet lessons. Every bit counts. Once you have a “bottom line,” compare that with your actual net income and see what wiggle room you have– if any.
Present: Take another look at your monthly bills. Re-evaluate them with a fresh pair of eyes. Does your child need ballet? Can you truly afford both soccer and baseball this year? Be honest with yourself. Do you really need that extra latte? Are you actually using that gym membership?
The general mindset is that the amount of money you make will make you wealthy. This is a bit of a misconception. The real answer is not how much you make, but rather much you spend.
Future: Now that you’ve found what you can and can’t do without, it’s time to start an emergency savings account. The general rule of thumb is to have approximately six months of income saved up for emergencies. Once you feel comfortable with how much you have in an emergency savings account, then you can start looking at retirement options.
Children’s Future: What about college? Despite our best efforts, our children won’t stay young forever. In addition to contributing to a retirement plan for yourselves, you should also start putting money aside for your children’s future. One of the best ways is with an education savings plan, or 529 plan, since your investment grows tax-free.
Conclusion: The balance lies in making your past, present and future all work together to ensure a happy bank account and a secure family. Put your money where your family needs it most. Find out what is most important for your family’s safety and fiscal security. Shift funds away from those extra lattes and into a savings account that allows your money to work for you. And, as always, if you have any questions about your finances, ask the experts first! They are there to help you avoid those financial pitfalls before (and after) you step over them.