Broke-Ass Student

Small progressions yield hefty results

A new year descends upon us with a fresh and invigorating beginning, and we all know we keep meaning to do better with our finances. It’s one of those things which constantly seem to be placed on the backburner as life continually whisks us from one unforeseen circumstance to another.

Thus we continue to obtain enormous amounts of information and financial wisdom from different resources, such as blogs, books, or forums. But, unfortunately, until we take action for the sake of our own money growth, we are accomplishing very little while simultaneously wasting valuable time.

Make this a daily mantra to ask yourself; what baby steps am I doing now, today, to aid my progression to a better financial future? What can I achieve right now to help me reach my goals?

Here are some small but effective methods to help improve personal finances.

Live below your means. A very simple concept – spend less than you earn. Respect and value every cent you make and learn not to surround yourself with needless material possessions that only add clutter and distraction to your life. Plan wisely for the things which are important for you and which contribute to your well-being and happiness.

Change your mentality towards finances. Stop paying for expenses with future earnings to avoid falling into the credit card trap. Refuse to indulge the national ‘buy now, pay later’ consumerism philosophy. Companies make billions off this mentality every year. Get angry and stop letting others profit from your hard earned salary.

Learn to spend only what you have in the bank. Use credit cards to your advantage and get in the habit of paying the entire balance off each month to avoid finance charges.

Make it a priority to establish an emergency fund. A solid emergency fund is generally saving two to six months worth of expenses. It’s really frightening how few households have this safety cushion for themselves. This will help break the ‘living from paycheck to paycheck’ cycle and bring peace of mind for unexpected circumstances. You’ll then be prepared to face unexpected situations in a pinch.

Save an emergency fund or pay off debt first? This is my current predicament. If you’re also questioning whether to begin your emergency fund or pay off debt first, check the interest rates on your credit cards and loans to decide. If you’re paying 18% on a credit card and only earning 5% in a savings account, you’ll be losing out on 13%, with the 5% interest on your savings being taxable as well. Therefore, it’s wisest and most beneficial to use savings to aggressively eliminate the debt first. Remember to first save a small amount for emergency situations that may crop up – roughly $500 to $1,000. Once debt is eliminated, you can concentrate on establishing a more complete emergency fund. And once you have a tidy emergency fund, you’ll have incredible peace of mind and can start investing wisely for the future to watch your money grow.

Make your savings work for you. On average, the American economy is battling approximately 3% inflation every year. It’s imperative to take this into consideration when setting up any type of investment. Short-term financial goals, categorized as any goal within the next fives years, such as saving for a car or a down payment on a house, should be placed in a fairly liquid and safe type of savings. This could be online savings accounts, certificate of deposits, or money market mutual funds. Invest for long term goals (up to and more than a decade, preferably two or three decades), by reallocating investments into more aggressive growth opportunities in the stock market. Remember, time is your greatest asset. The sooner you get started, the more you’ll benefit in the future.

Try eliminating a bad habit this year and watch your savings accumulate. Whether your vice is excessive fast food or smoking cigarettes, cutting back or quitting an unhealthy addiction will not only benefit your piggy bank, but will also dramatically improve your overall well-being.

Stop receiving a tax refund. Yes you can adjust the size of your tax refund with the help of a tax calculator.

I have no idea why, but some people psychologically get a thrill from receiving a huge tax refund each year. I don’t think they realize they’re essentially duping themselves. The federal government has been using your money for free. If you pay what you owe to begin with, all that extra money could be sitting in a high yield account earning some fabulous interest for yourself during the course of the year. It’s much better to break even or owe a small amount to the IRS at tax time. Stop giving Uncle Sam an interest-free loan!

• #1 – Stop incurring more debt
• #2 – Start a ‘beginner’ emergency fund, a small savings of $500-$1,000
• #3 – Eliminate all high interest debt as quickly and aggressively as possible
• #4 – Establish an emergency fund of two to six months worth of expenses
• #5 – Time is on your side; build your wealth through long-term investments for the future

The most important step of all is, TAKE ACTION. Even the smallest of steps will bring you closer to your financial goals and, ultimately, to greater peace of mind.

~†~ Baby Steps are Key ~†~

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