By Debi Keay
We start the new year with fresh inspiration on many fronts. Perhaps this year, you’ve vowed to give your personal finances some needed attention.
Yes! But where to start?
Renovating your financial life is a great idea! Unfortunately, for many, that initial rush can quickly give way to a sense of futility. Desmond Henry, a Certified Financial Planner (CFP) in Topeka, Kansas, knows that for many of his clients, getting started is the hardest part.
"Sometimes focusing on lofty money goals like building a retirement nest-egg and paying down hefty student loan debt can feel so impossible to achieve that it actually paralyzes us and we end up doing nothing," says Henry. "Instead, create baby steps and focus on accomplishing small money wins.”
"Sometimes focusing on lofty money goals like building a retirement nest-egg and paying down hefty student loan debt can feel so impossible to achieve that it actually paralyzes us and we end up doing nothing," says Henry. "Instead, create baby steps and focus on accomplishing small money wins.”
Start small. Feel good.
Psychologists say baby steps are a powerful way to form good habits, and financial gurus such as Dave Ramsey agree. Small wins lead to positive feelings right away, and motivate us to tackle bigger challenges.
Baby steps we like.
We’ve curated a few ideas for improving your financial picture, while gaining a sense of control over your money. You needn’t try them all at once. Just start anywhere that seems doable.
1. Save up some breathing room. Ahhh, the Emergency Fund! Experts say we all need enough savings – apart from tax and retirement funds – to cover three to six months of living expenses. That’s a big number for most of us, a seemingly impossible goal if we don’t win the lottery this week.
Baby Step Focus instead on creating a comforting “pad” in your primary checking account. Accumulating and keeping a minimum balance as small as $500 can help you sleep better at night.
Next Steps
• Open a savings account if you don’t already have one. Set up automatic deposits, in an amount that’s sustainable.
• Apply any windfalls to savings, and in time you’ll have your Emergency Fund.
2. Go on a Spending Diet. A spending diet or freeze is just what it sounds like: a pledge to cut back on discretionary purchases for a specified period. The payoff is more than just money in the bank. Engaging in this practice, even for a short while, can shed new light on your spending patterns, and the behaviors that drive them.
Baby Step Start with a two-week freeze. Keep track of what you didn’t spend.
Next Steps Use your findings to re-assess priorities and make permanent changes that no longer feel punitive.
3. Plug the leaks.
To reduce expenses, start with the low hanging fruit. Chances are, you haven’t taken advantage of all the ways you could trim your monthly bills. How much are you paying for things you simply don’t need?
Baby Step Cut the expenses that are easy to lose.
Start by taking stock of those autopayments that can add up to a big drain on your checking account.
• Cancel memberships and subscriptions you aren’t using.
• Update your mobile phone plan.
• Shop for lower insurance rates.
Next Steps Tackle the big drains on your income.
• Switch out a pricey new car for a reliable used car.
• Refinance your house to a 15-year term if you can.
• Learn to avoid tax penalties – by making quarterly payments on time, and contributing regularly to an IRA or SEP, for instance.
4. Track your spending.
Chances are you’ve seen this advice before: Find a notebook, save receipts, write down every penny you spend, every day. And you’ve thought, “No way.”
But this exercise works. Blogger Jesse Mecham says that by his second month of tracking, he had cut his spending total in half. “I wouldn’t spend money because I didn’t want to have to write it down later,” says Mecham. “I didn’t feel deprived, dejected, boring, out of style, uncool, or weird. I really felt like I still could have anything I wanted.”
Baby Step Find a home for your list and write down every dollar you spend at Starbucks, every trinket you grab at Target. It isn’t as tedious as you may think. Tracking can become a routine you actually enjoy.
Next Steps Create a budget that reflects your actual spending habits. Find helpful budgeting tools at sites like mint.com, or download the Wallet app.
5. Pay off your smallest outstanding debt. Dave Ramsey calls this the Snowball Method. Because paying off all your debt can be overwhelming, it’s good to concentrate on your smallest debt first. This could include payments you’re making to a health care provider, a bank or a credit card company.
Baby Step Bring laser-beam focus – and every extra dollar you can scrape up – to paying off your smallest interest-bearing debt. Make larger payments to this creditor each month, while continuing to make minimum payments on larger debts.
Next Steps Pat yourself on the back when you’ve eliminated that first debt. Then use the headroom you’ve gained to aggressively pay down your next debt.
1. Save up some breathing room. Ahhh, the Emergency Fund! Experts say we all need enough savings – apart from tax and retirement funds – to cover three to six months of living expenses. That’s a big number for most of us, a seemingly impossible goal if we don’t win the lottery this week.
Baby Step Focus instead on creating a comforting “pad” in your primary checking account. Accumulating and keeping a minimum balance as small as $500 can help you sleep better at night.
Next Steps
• Open a savings account if you don’t already have one. Set up automatic deposits, in an amount that’s sustainable.
• Apply any windfalls to savings, and in time you’ll have your Emergency Fund.
2. Go on a Spending Diet. A spending diet or freeze is just what it sounds like: a pledge to cut back on discretionary purchases for a specified period. The payoff is more than just money in the bank. Engaging in this practice, even for a short while, can shed new light on your spending patterns, and the behaviors that drive them.
Baby Step Start with a two-week freeze. Keep track of what you didn’t spend.
Next Steps Use your findings to re-assess priorities and make permanent changes that no longer feel punitive.
3. Plug the leaks.
To reduce expenses, start with the low hanging fruit. Chances are, you haven’t taken advantage of all the ways you could trim your monthly bills. How much are you paying for things you simply don’t need?
Baby Step Cut the expenses that are easy to lose.
Start by taking stock of those autopayments that can add up to a big drain on your checking account.
• Cancel memberships and subscriptions you aren’t using.
• Update your mobile phone plan.
• Shop for lower insurance rates.
Next Steps Tackle the big drains on your income.
• Switch out a pricey new car for a reliable used car.
• Refinance your house to a 15-year term if you can.
• Learn to avoid tax penalties – by making quarterly payments on time, and contributing regularly to an IRA or SEP, for instance.
4. Track your spending.
Chances are you’ve seen this advice before: Find a notebook, save receipts, write down every penny you spend, every day. And you’ve thought, “No way.”
But this exercise works. Blogger Jesse Mecham says that by his second month of tracking, he had cut his spending total in half. “I wouldn’t spend money because I didn’t want to have to write it down later,” says Mecham. “I didn’t feel deprived, dejected, boring, out of style, uncool, or weird. I really felt like I still could have anything I wanted.”
Baby Step Find a home for your list and write down every dollar you spend at Starbucks, every trinket you grab at Target. It isn’t as tedious as you may think. Tracking can become a routine you actually enjoy.
Next Steps Create a budget that reflects your actual spending habits. Find helpful budgeting tools at sites like mint.com, or download the Wallet app.
5. Pay off your smallest outstanding debt. Dave Ramsey calls this the Snowball Method. Because paying off all your debt can be overwhelming, it’s good to concentrate on your smallest debt first. This could include payments you’re making to a health care provider, a bank or a credit card company.
Baby Step Bring laser-beam focus – and every extra dollar you can scrape up – to paying off your smallest interest-bearing debt. Make larger payments to this creditor each month, while continuing to make minimum payments on larger debts.
Next Steps Pat yourself on the back when you’ve eliminated that first debt. Then use the headroom you’ve gained to aggressively pay down your next debt.
A simple strategy: Do what you can.
Financial wellness won’t come overnight, but it’s possible for anyone. Aim for small victories at a manageable pace, and see how much better you feel.
See more on these topics.
10 Short Term Financial Goals for the New Year
What Are Dave Ramsey's 7 Baby Steps?
5 Reasons to Try a Two-Week Spending Freeze
What I Learned from a Six Month Spending Freeze
25 Unnecessary Wastes of Money You Don’t Think About
The Notebook That Will Change How You Think About Money Forever
See more on these topics.
10 Short Term Financial Goals for the New Year
What Are Dave Ramsey's 7 Baby Steps?
5 Reasons to Try a Two-Week Spending Freeze
What I Learned from a Six Month Spending Freeze
25 Unnecessary Wastes of Money You Don’t Think About
The Notebook That Will Change How You Think About Money Forever
Tell us what you think.
Can this same approach apply to parish finances? What “baby steps” can congregations take to address shortfalls on church balance sheets?
Please be generous with your comments and ideas!
Please be generous with your comments and ideas!
Apply for help with seminary loan payments. Deadline February 15, 2019.
Clerics in the Indianapolis Diocese may now be eligible for seminary loan repayment aid.
A portion of the Ministerial Excellence Fund, made possible by a generous grant from Lilly Endowment Inc., will be dedicated to matching clergy seminary loan payments made in 2018. Both active stipendiary and non-stipendiary clergy who are participating in congregational ministry may participate in the aid program.
To make this positive step toward loan repayment, complete the application by February 15, 2019.
A portion of the Ministerial Excellence Fund, made possible by a generous grant from Lilly Endowment Inc., will be dedicated to matching clergy seminary loan payments made in 2018. Both active stipendiary and non-stipendiary clergy who are participating in congregational ministry may participate in the aid program.
To make this positive step toward loan repayment, complete the application by February 15, 2019.
Writer Debi Keay has researched and written about financial wellness for more than 20 years.
DISCLAIMER
This content is not intended to provide legal, tax, accounting, financial or investment advice or indicate the suitability of any financial product, service or advisor for your unique circumstances. You are encouraged to consult with a qualified legal, tax, accounting, financial or investment professional based on your specific circumstances.
I like to share links to articles and information that may be useful. This is in no way an endorsement of said content by me or by anyone associated with Episcopal Diocese of Indianapolis.
DISCLAIMER
This content is not intended to provide legal, tax, accounting, financial or investment advice or indicate the suitability of any financial product, service or advisor for your unique circumstances. You are encouraged to consult with a qualified legal, tax, accounting, financial or investment professional based on your specific circumstances.
I like to share links to articles and information that may be useful. This is in no way an endorsement of said content by me or by anyone associated with Episcopal Diocese of Indianapolis.
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