By Ruth Mahoney, President, Capital Region, KeyBank
In 2019, the top New Year resolution for most people is to get healthy—either physically or financially. If you’re among those who did, the question is: have you already abandoned it?
According to Strava, a social network for athletes, most people stop following through on their good New Year intentions by January 17. For those who fail to keep their resolutions, the primary reasons are common. The goal is either unrealistic, requires too much change or lacks specificity.
The good news is that for all those who fail to achieve their New Year goal, there are many more who achieve it. For those who do, it is usually because they have an actionable, manageable plan. For example, going to the gym three times a week for 30 minutes a session is a concrete action that will yield positive results. Making coffee at home instead of picking it up on the way to work is a direct action that can save money. So, if you want to achieve your goals, particularly your goal to maintain and boost your financial wellness, reset your expectations. Drop the vagary, such as saving more money, and commit to achieving a realistic, well-defined goal.
Assess your financial health
When it comes to our finances, most of us don’t have the resources to dig ourselves out of debt in a year’s time, let alone achieve our retirement goals. However, that doesn’t mean we can’t make significant progress. Not taking a step backward can be as important as a step forward.
Are you currently living debt free? Have you recently splurged on a vacation or holiday gifts for loved ones? Is your retirement on track? What about your monthly expenses…are you keeping up?
Financial wellness doesn’t necessarily mean you live debt free. Debt is normal, as long as it is manageable and you maintain a low debt-to-income ratio. This refers to the percentage of debt (e.g., your total monthly loan payments) to your monthly income before taxes. Your debt-to-income ratio should be less than 40 percent.
Work toward financial progress
Regardless of whether your debt-to-income ratio is above or below 40 percent, your minimum goal for 2019 should be to not let it climb any higher. Better yet, shoot to bring it down a few percentage points. The following tips can help.
- Review your spending habits. Focus on what you buy. Just because you want it doesn’t mean you need it. Also, consider how often you use credit to buy the extras and whether or not you should reserve credit cards for major, significant purchases you can pay off promptly.
- Stick to your budget. Budgeting for food, clothing, entertainment and other extras helps you understand where you allocate your income. If you use online and mobile banking tools, checking your account balances and transactions is that much easier.
- Control credit card debt. Come up with a debt elimination plan. One strategy is to tackle high interest cards first. An alternative approach that can help you feel like you are making quicker progress is to attack lower balance cards first. Once a card is paid off, apply that payment amount to the next card. As each balance gets paid in full, the amount of money available to pay off the next card increases. Finally, once you get your credit card account balances under control, pick one card to cover unexpected necessary expenses and pay cash or use your debit card for the rest.
- Review your credit report. You are entitled to one free report a year from each of the three major credit-reporting agencies—Equifax, Transunion and Experian. Check for and fix discrepancies. Inaccurate information can affect your credit rating.
- Contribute to savings. Commit even just a small percentage of your paycheck to your savings account. Automate transfers so you don’t have to think about it.
- Build an emergency fund. This should be a priority. The quickest way to derail financial progress is to get hit with a large, unexpected expense you cannot afford to pay. Your emergency fund should be three to six months of your living expenses.
- Adjust with life changes. If you are considering changing careers, buying a home, having a baby or even getting closer to retirement, revisit your financial plan and long-term goals with a financial planner. In particular, review your insurance coverage, retirement plan, will and estate plan.
Just as with physical fitness, there are different levels of financial fitness. While it’s always important to have your big picture goal in mind, it is equally important to understand that it is the little battles you win that make the big goal possible.
The important thing is to not give up. Even if you’ve already abandoned your New Year resolution, it’s never too late to recommit to more realistic goals. In fact, simply understanding your financial situation better is a great start. Checking off one or two of the things from the above list is even better. At the end of the year—resolution or not—you’ll be happy you did, because you’ll have improved your financial wellness.
About the author: Ruth Mahoney is regional retail leader and president of KeyBank’s Capital Region. She may be reached at either 518-257-8619 or [email protected]
Three simple money-saving strategies
The average American saves 6 percent of their income. While there is no magic number when it comes to your individual savings rate, this is much lower than what most financial advisors recommend—10 to 20 percent.
If you’re not saving as much as you would like and are determined to get off of the paycheck-to-paycheck rollercoaster, here are some simple money-saving strategies you can incorporate into your regular routine.
According to National Automated Clearing House (NACHA), 82 percent of Americans are paid via direct deposit. In addition to convenience, there are financial benefits as well. For example, you can split your deposits—dedicating a percentage of every paycheck to savings.
To set up direct deposit is easy. Most employers provide direct deposit signup forms. You will need to provide your bank account number and routing number. Your bank may also provide a direct deposit form you can submit to your employer for payroll and retirement and dividend deposits.
Carry big bills
People commonly carry more plastic than paper in their wallets. The problem with this is that people typically spend more with credit than cash. Also, the type of cash you carry makes a difference in how you choose to spend it. According to a study from the University of Maryland, people are more likely to think about a purchase when they have to break a $20 or $50 bill. If you want to spend less, which in turn will allow you to save more, leave your credit cards and dollar bills at home.
Establish an emergency savings fund
If a crisis hits and you don’t have a dedicated emergency fund, you may be forced to use financial resources meant for other needs. Or you may need to borrow money. With average credit card rates as high as they are, this could cost you much more in the long run.
Most experts recommend setting aside three to sixth months of living expenses for an emergency savings fund. This can help cover loss of income in case you suddenly lose your job or ability to do your job. Or it can cover unexpected bills, from a broken washing machine to a leaky roof to a medical emergency. The best place to keep your emergency fund is somewhere that’s easily accessible when an unexpected event hits. A basic savings account is a simple, convenient place to start.