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Archive for November, 2013

Setting Financial Goals

As we get closer to the new year, it’s a good time for you to start thinking about financial goals. Those goals will be different if you’re a business, an independent professional or an individual or family, but it’s still important to work on setting at least a few goals.

There’s always a debate about whether it’s better to set goals that are definitely reachable or whether thinking outside of the box and shooting for the moon is the way to go. Truthfully, the best goals are the ones where you actually have some kind of control over it because it’s easier to stay focused. For instance, if you said you were going to save $25,000 but you only make $30,000 a year right now and have $5 in your savings account, it’s probably a very unrealistic goal without some other plans that have nothing to do with finances.

All financial goals are about 3 things: saving money; reducing debt; and increasing income. You can set your goals based on one thing, or you can try to do something with all three. If you’re already doing well financially maybe you don’t have to worry so much about the last one, and yet even there the concept of income isn’t a strange one, as income is more about growing your money than about finding a new job.

Whereas when we talk about budgeting we always start with figuring out income, when setting financial goals you always think about your debt first. This is because most people have higher debt, as it pertains to percentages at least, and it’s probably the most important thing to know where you stand.

Next on the list comes saving money. This is important because it’s your first step towards becoming fiscally responsible. Saving money takes on two forms. One is actually saving money, such as in a bank, investments, etc. The other is saving money on purchases, whether it’s new items such as clothing or items such as food, which are recurring purchases. There are families that learn how to save $100 or more each month just using coupons or store coupons at stores they don’t usually frequent. Just imagine how important an extra $100 is a month without having to worry about an increase in taxes.

Finally comes the topic of increasing income. It’s last on the list for two reasons. One, not everyone has to deal with this one as a definite thing, although looking at different ways to invest money in higher yield returns might not be a bad idea. For some people however this will be important if they’re just barely getting by on what they make now. We’ve previously warned people about the tax dangers of part time jobs but that might be one way to go. Another way to go is to see if you can get a raise where you work. If it’s a large company where you can’t just ask for a raise, it might be time to broaden your scope of employment opportunities for something that pays better.

No matter what you do, setting goals is only the first step. No goal can be achieved without plans for how you hope to get there. Of course if you ever need help in that arena, give us a call. 🙂
 

Weaning Yourself Off Credit Cards

Can we share some statistics with you? From CreditCards.com, here’s something to think about:

* The average credit card balance amount is $7,145

* Half of low- and middle-income households carried debt from out of pocket medical expenses on their credit cards, around $1,678

* 26% of small-business owners carry a balance of less than $10,000 on their business credit card

* Only 39% of credit card owners carry a month to month balance

Want to know something? Even those top 3 are lower than the numbers were in 2010, while the economy was still in freefall. Unfortunately, as the economy has gotten stronger and spending has increased, there’s a great possibility that when newer statistics come out in 2014 we’ll find that more people resumed their credit card usage; that’s not good at all.

What we’d like to offer in this article is a 4-step process for weaning yourself off or reducing your credit card usage. It’s not easy to do if you’re used to pulling your card out for every purchase but if you’re willing to learn a little bit of discretion, this could work to your advantage. After all, no one wants to stay in debt forever, right?

1. If you have multiple credit cards (we’re not talking about store cards; that’s for another time), look through them and pull two of them out; the one with the highest balance and the one with the lowest interest rate. You’re looking to do two things here. One, you want to see if you can move some of the balance off your highest card to the one with the lowest interest rate. If you can actually move it all that’s a great thing; if not, the more you can move the better. If you’re only left with a few hundred to pay off on the high interest card, you still end up saving a lot on interest and that’s one card you can put away forever. If you have a second card with a very low interest rate and other cards to deal with, this is a good starting strategy for all of them.

2. Work on paying off all your small balances on the remaining credit cards. If the balances are relatively low you might be able to pay them off fairly quickly. It could take you a while to pay down some of them but realize that you’ll still owe less than what you would have if you hadn’t moved balances over.

3. As you initially pay off your smaller credit card balances, don’t immediately use that money towards paying down your higher balance cards. Instead, work on getting into the habit of using your debit card as your credit card. What that does is prevents you from indiscriminate spending because you know it’s coming out of your bank account. It also forces you to manage your money better overall.

4. If you find that you need a little bit of a boost, use the cards with your new higher balance for small things, making sure you spend less than what your monthly payment will be, which hopefully you’re trying to pay more on. One of my clients, while working on reducing his debt, used one of his cards to buy his gas, which was less than $80 a month, but that money meant a lot to his budget. He was still able to bring his balances down while doing that and eventually got to a point where, because he’d learned how to reduce spending, he didn’t have to do that any longer.

You’ll always have to keep a credit card around for emergencies and to make reservations for things like cars, planes and hotels, but bringing down your debt will bring you peace of mind and eventually give you the opportunity to save money.