Reviewing your current financial state is a great start, but it’s only the beginning. In order to make progress you need to know where you want to get. Make sure your goals are obtainable or you will lose focus and give up. Set short term and long term goals. Short term goals will help you see progress as you work towards the longer term goals.
Savings – set a short term goal of saving a certain amount per month. Remember interest is your friend. Although interest rates are low on savings accounts, it might make sense to evaluate money market or other high interest savings accounts.
Retirement – as you work on your budget, figure out what percentage of your income you will put away for retirement. You might start off with only 3%, but overtime you might work your way up to 10% or more. The earlier you start and the more you can put in earlier in your career, the better return you will see at retirement. At a bare minimum make sure you are contributing enough to get the entire match from your employer. This is free money and when they often match 50% of the first $2,000 or $3,000 you contribute, this is the best return you can get on your money!
Debt Payoff – debt can be overwhelming, but as you start to execute a plan to pay off your debt you will begin to see the light at the end of the tunnel. It will take time, be stick to your plan and stay patient. It you have additional dollars some months, look for opportunities to make extra payments and pay down your debt even sooner.
Mortgage – when you look at your total payments over the course of a 30 year mortgage, it can make you sick to your stomach. The best way to reduce these interest payments is to make an additional payment each year. There are two easy ways to do this:
1. Schedule your payments bi-weekly. Over the course of the year, you will make 26 payments or 13 monthly payments.
2. Divide your monthly payment by 12 and add this amount to your payment each month. This will pay down the principal and over the year, it will be like making an additional payment
Either of these strategies will save you big money. I did the latter option on my first mortgage and it took 7 years off my 30 year mortgage. Yes, 7 years!
Student loans – the same strategy can be applied to student loans. Unfortunately, I graduated college with student loans. While I setup a 10 year repayment plan, I have repaid my loans pretty aggressively by paying additional principal each month. I’m currently on schedule to pay these off in about 6 years instead of 10.
Credit Card – credit card debt is the worst debt in my mind. Credit card debt can quickly spiral out of control. Focus on highest interest cards and always try to pay more than the minimum payment.
College Fund – college expense keep increasing at alarming rates each year. I graduated with student loans and I don’t think that is a bad thing. I’ve never been one to expect things to be paid for me. As expenses continue to increase, it might be worth setting up a minimal college fund for your children though. It’s one thing to graduate with $30k in student loans, but $75k or more would sure put you in a hole at a young age. Anything will help, whether an actual college savings account or smaller savings bonds that will mature by the time they enter college.
Setting goals is the easy part, but make sure you stay motivated to achieve these goals.