5 Key New Year’s Resolutions for Financial Fitness

It’s the start of a new year and a new decade. People’s thoughts turn to regaining their healthy habits and make pledges about going to the gym for regular workouts. It’s a shame those promises tend to melt away with the ice and snow of spring. In fact, a recent study by Scranton University shows just 8% of people achieve their New Year's resolutions!

Our prescription for healthy living involves getting your finances in order. What’s the connection? Financial anxiety is the number one cause of marital breakdown, stress and high blood pressure. So, let’s look at a few really simple steps to relieve that anxiety and get healthy, all without raising a sweat – not that raising a sweat is a bad thing.

1. The first step is to track where your money is going. Keep a log of what you spend every day for 2 weeks. You’ll probably be amazed when you see it in black & white, and you’ll quickly see items that could be eliminated and put into savings.

2. This leads to the second step which is to determine whether what you are purchasing is a Want or a Need before you buy. Try going on an All Needs diet for a week: soap and toothpaste are Needs; magazines and candy bars are Wants. You could live without the Wants and put that money into savings or paying down debt.

3. Speaking of debt – get rid of it! If anything can drag you down, it’s debt. Paying the minimum every month can stretch even a small debt out for years. So, resolve to use any savings from the first 2 steps to upping your monthly debt payments.

4. Once you’ve relieved yourself of the burden of debt, keep the celebrations small and set up some savings plans. Start setting aside money for short and long-term goals. Maybe an inexpensive trip away with the kids? Start putting a little aside each week for that. At the same time, start planning for their college education or a down payment on a house, or your retirement. Having your bank take out a portion of your paycheck every week is relatively painless and you’ll be amazed how good it feels to see your money growing.

5. After taking these simple steps you will feel better. You start to feel more in control, and your stress and blood pressure will start to decrease. Fantastic! Now, continue the process by educating yourself about personal finance. Stop getting ripped-off by unscrupulous vendors selling things you don’t need. Learn how to avoid spending money needlessly with no return. It doesn’t have to be difficult or boring. All of our books and the online course, for example, were designed for the absolute beginner. People write to thank us for “changing their lives”. It’s very empowering. And, it’s not just us. There are loads of great resources out there, you just have to look. Find the voice that speaks to you, then relax and enjoy the new decade stress-free.

The 5 Year Christmas Gift

For those of you who have known us over the years through our books and workshops, you’d know that we would never, ever advocate carrying a balance on a credit card.

The Holiday season provides a perfect illustration as to why. According to the National Retail Federation, the average American will spend $1048 on gifts this Holiday season.

It’s news that brings a tear to the eye of every retailer. But what happens when that holiday merrymaker puts that amount on the average bank credit card?

Well, if they decide to pay the minimum amount ($20) every month on a credit card with an 18% apr., it would take 8.6 years until the full amount was paid off. Ouch. If the minimum amount paid every month was the more common $25, the balance would be paid off in 5 and a half years.

5 and a half years! Are you kidding me? I can’t remember what I did or received last Christmas let alone 5 years ago. A couple of things to point out here:

• First, these timelines assume that you do not add any new purchases during the entire 5 ½ years. How likely is that? If you do add purchases, the debt payments will go on and on.

• Secondly, if you are using a credit card from a major retailer or a big box store those timelines almost double: they usually use a 28% APR, so a $25/mo payment on a $1,048 balance would take almost 14 years to pay off!

A simple way to avoid this nightmare altogether is to use only cash or debit when you go out shopping. But, what should you do if you find yourself in this position? Consider this: if you increased the payment on the bank credit card from $25/mo to $50/mo, you would reduce your pain from 5 ½ years to just over two years.

So, if you have to carry a balance, do so on a card with the lowest APR possible. Then do whatever you can to increase your payments as much as possible. As we’ve seen, even an extra $25/mo can cut your pain by more than 50%. And if that’s not an option, let’s hope that your friends and family aren’t expecting any gifts for another 5 years.

Holiday Spending tips

The Holiday season is upon us once again. It’s the season to get together with friends and family and eat just a little too much. But, what the heck, it’s Christmas. Unfortunately, it can also be a very stressful time as we spend money we can’t always afford gifts for everyone.

The National Retail Federation says that the average American plans to spend an average of $1,048 this year. That’s a lot of money, especially with so many people living paycheck to paycheck. So, before you get too far down the road of credit card destruction, here are some self-preservation tips.

The most important step is to set a budget. That doesn’t sound like a lot of fun, I get it, but it will save so much pain and frustration in January that you’ll be really glad you thought this one through. Wouldn’t you rather buy a gift or take someone out for a Holiday meal knowing you have the expense planned for rather than enduring that gnawing feeling in your gut that you’re on the path to budget meltdown?

So, take some time and write down everyone you would like to do something special for and how much to spend on each. Remember to include money for decorations, meals, restaurants and bars if you need to. Can you afford it all? Maybe it’s time to speak to family and friends about picking a name out of a hat and buying a nice gift for one person rather than buying separate gifts for each person on the list. And, if you’re feeling pressured into buying an expensive gift for a friend that you really can’t afford, consider finding new friends.

Try and figure out what you want to buy before you enter a mall or store. When you know what you want, you’re more likely to focus on getting the item at the best price and less on being distracted by sale items that may be deeply discounted, but that you really don’t need.

Taking only cash with you on your shopping trip is another good way to avoid overspending: once the cash is gone, you’re done. Shopping online can save you in two ways: you won’t be distracted by front-of-store leaders, and you save the cost of gas, parking, your time, and the stress of endless lineups. I’m happier already.

Avoid using credit cards from major retailers and big box stores. If you end up carrying a balance it will cost you much more than a bank credit card. And that leads us to the final tip:

Never carry a balance on a credit card. Remember that estimate of $1,048 most people will spend this year? If they put that amount (you know it will be more) on an average credit card with an 18% apr, and you pay the minimum every month, you’ll still be paying for that gift 5 years from now. 5 years! Hope they really liked it.