This is a wonderful time of year when most people are in a very generous mood. It is a joy to see the happiness and excitement about the upcoming holidays. There is a lot of holiday shopping going on, combined with a lot of spending.
The extreme commercialization of the holidays is astounding. We have become conditioned to spend, spend, and spend. It is sometimes surprising that people are so willing to purchase luxury items or needless things that will be under-appreciated or even forgotten in the new year. Many will even go into debt during this time of year.
This is the worst kind of “fix” imaginable! While being generous can be a great “high,” the repercussions in the new year may be staggering. If this shopping is done with credit and the bills are not paid in full, interest rates of up to 29% will certainly rob you of all joy in the new year.
Perhaps the best gift you can give to your family and loved ones is being financially secure. The peace of mind that comes with being debt-free will be appreciated. Being debt free will open new possibilities for the future and offering a sound financial future may be the greatest gift of all!
It's not about turning into Scrooge or being the Grinch.
Taking care of your family's future is the best way to demonstrate your love.
There is no secret or magic to have healthy finances. It takes a willingness to change, work and discipline. Understandably, this can feel even harder this time of year when clever marketing keeps tugging on your purse strings.
If you are not sure how to get onto the path of financial freedom, it may not be as difficult as one might think.
Here are seven strategies to help you grow your funds.
1. Pay Yourself First
If you are tempted to spend your whole paycheck, initiate an automatic transfer into a separate account. For most people, out of sight equals out of mind. Train yourself to live on less, if need be, but deposit a portion of your income into your savings each and every paycheck.
Mark that account for investing and don’t touch it until it is time to invest. Find out the minimum amount your financial planner will invest at one time. Keep depositing into a high interest account until you have saved enough to transfer it.
Don’t wait until you have a huge sum! Your financial planner should be able to invest it for far greater return than the high interest account. So, don’t keep your precious funds idling!
2. Pay All Your Bills
Most people pay their bills on time. This avoids any penalties and shows well for your credit score.
If you are struggling to pay your bills on time, it might be worthwhile to see what expenses can be cut until you are back on track. Look for items you can cut or reduce so that you are not scrambling to find money. Reducing your wants are a good place to start. Review what you think you need compared to what you actually use. The truth of your actual consumption may surprise you.
If you can do without, cut or reduce the service. If you have money left over in your budget, use it to treat yourself.
Most advisers would cringe at this, but I feel it is OK to use a credit card to earn points while you are paying bills if you do not carry a balance from month to month. Getting cash back rewards is a nice way to treat yourself with a splurge. If the reward is for travel or merchandise, make sure you understand the terms of the rewards and that it is something you can use (and would have bought anyway).
Never be tempted to spend more in order to get these points.
3. Separate Your Spending
Paying your bills is easier if you can separate your spending. Most utility bills are predictable from month to month. If you live in an area where utilities get high with summer heat or winter cold, find out if your utility company offers equalized payments so you can budget for your bills. This keeps you from getting behind with any surprise seasonal increases in your billing.
Another way to separate your spending is to have a set amount to use every two weeks for discretionary items - kid’s activities, entertainment, dining out and new clothes. This may help to keep your spending in check because these are the areas where most people get into trouble with impulse purchases.
Keep a separate card for these monthly expenses that is always paid in full.
Have a separate card for emergencies. While just about everyone has an emergency from time to time that may require carrying a balance for a month or two, there is no reason to pay interest on your regular payments because of one of these unexpected events.
It is also important not to habitually overspend or view credit cards as “free money.” The only one getting free money is your creditor when you pay interest!
If you carry a balance, you are robbing your future self of money.
4. Manage Debit Cards
Most debit cards charge a transaction fee per use. If you have a banking plan that offers you some free transactions, by all means take advantage of them – but keep track to avoid any fees for debit withdrawals over the limit.
Maximize any free withdrawals by taking out cash once a month - or less often. This is important if you are charged a fee for your debit use after your limit. Instead of withdrawing weekly, make one withdrawal for the month and divide up the cash for each week so you are not tempted to spend it all at once. You will save yourself three withdrawals for other uses!
Perhaps the least advantageous catch of debit cards is that it can be difficult to keep track of spending. Most banks don’t describe what the debit transaction is for. It’s certainly convenient to use a debit card for that occasional unplanned coffee or lunch purchase with friends or colleagues, but don’t do this as a habit. If you do not keep your receipts to review your spending each month, you may be leaking funds without being able to identify the source.
5. Performance Review
If you are using credit cards, it is important to review these statements every month to make sure there aren’t any fraudulent charges. In addition, while you are reviewing these charges, make note of how much you are spending each month on food, clothing, entertainment and transportation – or whatever else you spend on. Look for any areas that need improvement and revise your budget for future months.
Each month – or at least every three months – take the time to review your spending habits. Are you on track? Is there something that should be reduced or cut to keep your finances straight?
6. Pay Down Your Mortgage Before Retirement
Before you blow any of that money be sure that all other bills are paid off and that your emergency fund and home maintenance fund are topped off.
In addition, if you are approaching retirement, you may wish to start a separate fund for any potential medical expenses.
In addition, if you are approaching retirement, you may wish to start a separate fund for any potential medical expenses.
7. Teach Your Kids About The Value Of Money
Help ensure your kid’s future by teaching them the value of money. Your kids should contribute to their college funding. This gives them a vested interest in getting through college with good grades by appreciating the cost of education.
A summer job is a great way to earn money and get work experience. It also gives them a sense of responsibility for their own future and to earn a degree that will enable them to have a satisfying career.
The best lesson you can teach them is that there are no free rides in life.
It takes discipline, but living within one’s means is key to accumulating wealth. Being financially responsible in the present is a good way to ensure a comfortable future.
These steps are good places to start a more conscious and directed route to achieving your financial freedom. Read, reflect and take what will work for you.
Bottom line is that there is no blanket strategy. Each person must evaluate their own circumstances, needs and desires. Get the help you need to achieve financial freedom.
Above all, believe in yourself and believe that you will achieve your goal!
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Sources:
Lynda at Sonoran Sun | Private Equity Investments
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