Get your finances in order. Whether it’s your New Year’s resolution or it’s just time to stop the stress, we are here to help!

According to a recent Inc.com article, 32% of respondents say their new year’s resolution is to save more and spend less money.  In fact, is in the top 5 of all new year’s resolutions and also the top 5 for resolutions that fail.

Some people like to wait for an actual date or milestone, like the new year, to finally tackle their financial issues.  Other people wait for that watershed moment when they can’t take it anymore and they are sick and tired and finally start to want to make some financial changes.  In this episode 49 of the Saver and The Spender, we want to make your financial new year’s resolution of saving more and spending less a reality.

Common mistakes when making change

If you are making a change in your life, it’s an amazingly commendable thing to make that commitment to bettering your finances.  We find people typically will just google “get out of debt” or “personal budget template” or “save more money” and find some cookie cutter advice that hasn’t ever worked for anyone, but for some reason is still perpetuated to this day.

What they need is a new approach to budgeting that is fresh, innovative and will solve every kind of financial issue.  No matter if you can’t seem to stick to a budget, can’t get out and stay out of debt or can’t seem to save money like you know you should, the Fiscal Fitness Budgeting Method will make all of these problems go away!

Check out our full blog post on our budgeting method here.

 

Action steps when you have decided to make a financial new year’s resolution

  1. Gain some clarity, give yourself a pep talk and commit to at least 6 months whether you feel you are failing or not.  Let yourself know this is going to be simple, but not easy!
  2. Get an idea of where your actual numbers are. What are your expenses?  How much debt do you have?  Do you have an income problem?
  3. Look for support.  Hire a financial coach or get an accountability partner such as a friend that won’t be a “yes man”.
  4. Organize your fixed and recurring expenses by due date. What is due on the first, the second, the third, etc? On payday, pay all those bills due between then and the next payday.
  5. Figure out how much cash you need to pay for day to day expenses like groceries, Starbucks and eating out over the course of two weeks (or a pay period).  Take that money out on payday.
  6. Make a list of random and non-recurring expenses.  This is stuff like car repairs, home repairs, clothing, gifts, travel/ vacation, Amazon Prime membership, HOA dues, taxes, insurance, etc. Figure out, on average, what you pay for each expense over the course of the year and make a monthly average.
  7. Open up savings accounts for each expense at www.capitalone360.com or www.ally.com and every month transfer that monthly average from checking to savings.  When you have a random or non-recurring expense, you transfer money from that savings account back into checking and pay that bill.
  8. Set goals. Do you want to start to save for a down payment on a new home?  Do you want to save for a big vacation? Do you want to get out of debt?  Choose a goal and put all of your extra money towards that goal.

Debt Payoff Strategies

Here are the four debt payoff strategies we recommend to our clients.  Whatever way you are getting out of debt is the right way but there may be some minor tweaks that will make getting out of debt easier, quicker and actually exciting.

Snowball

This is the strategy popularized by Dave Ramsey.  It says list your debt in order of lowest balance to highest balance and pay off the lowest balance first.  Then pay off the next lowest balance and so on.

Benefits

This strategy allows you to get a quick win and stay motivated in paying off your debt.  It targets the emotional and psychological aspect of paying off debt.

Who Benefits Most from This Method

People that have trouble staying motivated and need to see quick and monumental debt reduction.

Avalanche

This is the strategy that Suze Orman prefers.  It says list your debts in order of highest interest rate to lowest interest rate and pay off the highest interest rate first.  Then you pay off the next highest interest rate and so on.

Benefits

This strategy allows you to pay off the debt that is costing you the most money because of the high interest rates.

Who Benefits Most from This Method

People that are very motivated to pay off debt and people that have debt with varying and high-interest rates.

Highest Payment

This strategy is favored by “Rich Dad, Poor Dad” author Robert Kiyasaki.  It says that you list your debt in order of highest payment to lowest payment (excluding real estate) and pay off the highest payment first.

Benefits

This strategy frees up the most money by paying off the debt the highest monthly payment first.

Who Benefits Most from This Method

People with varying payment amounts and people that don’t have real estate in the debt portfolio.

Emotional Baggage Pay off

This is our own debt payoff strategy creation.  This says that some people look at one debt and feel really yucky about it and the one that really causes an emotional reaction is the one you should pay off first.  For example, let’s say you have three credit cards all with $5,000 dollars on them. But one of those cards was the card you used to pay your divorce attorney, so you might want to pay that one off first.  It will reduce so much stress and stop you reliving a bad decision.  Forget about the interest rates and payment amounts.

Benefits

This frees up debt along with reducing your stress. It stops the cycle sooner of looking at a payment you just sent and reliving the negative emotions associated with it.

Who Benefits Most from This Method

People who look at a single debt and feel yucky or get angry every time they pay it.

If you are paying off debt you are doing it right.  There is no right or wrong way to pay off debt.  Each person has to choose what fits their life and their personality best.  Stick with it and throw all your extra money at that one debt you choose (after saving for random expenses) and you will get there!  Good luck!

Links

RELATED BLOG POST: How to Pay off Debt

RELATED BLOG POST: The best way to pay off debt

RELATED BLOG POST: How to Budget

 

Music by Annti Luode