Lisa Ernst
Executive Director, Savvy Ladies
The economic disaster brought on by the pandemic has been a wakeup call for many to take control of their finances. These five financial habits are a good first step.
In February 2020, The Wall Street Journal reported that United States credit card debt rose to record levels in the last quarter of 2019 according to the Federal Reserve Bank of New York. However, the job market was strong, and Wall Street was enjoying a bull market. What could go wrong? An unforeseen economic disaster brought on by a worldwide pandemic has disrupted life as we know it.
One of the golden rules of personal finance is to have three to six months of living expenses saved in an emergency fund to manage an unexpected hardship. For many, this information is not useful once the hardship arrives; however, let’s embrace the current health crisis as a wake-up call to get our financial house in order and take control.
Get super acquainted with your income and expenses
You’ve heard the dreaded “sit down and document your income and expenses” advice before, but it’s important. This is not the same as just reviewing the general numbers in your head. Start with your absolute needs followed by your wants. That way you’ll be clear on what budget items may need to be adjusted to meet your savings goals. There are plenty of free budgeting tools. Mint is a popular online budget tool. Savvy Ladies has free downloadable budget worksheets. Compare your budget to your actual spending every few months to see how you are doing and make adjustments.
Set SMART goals for your money
In an article written in 1981,George Doran articulated that goals were more likely to be accomplished if they were Specific, Measurable, Achievable, Relevant and Time-bound. Need to save for a house, a wedding, or vacation? Set your time-frame and determine how much you need to save each month to meet your goal.
Automate savings
This is often referred to as “pay yourself first.” Set up your online banking to include an auto transfer to a high-yield savings account. Remember, something is better than nothing. Aim to save at least five to ten percent from each paycheck. Check Bankrate.com for the best high-yield savings accounts so that your money is accumulating the most interest as possible. Once your automatic savings are in place, you do not need to remember to save a certain amount each month and you can watch how even a small amount saved grows over time.
Eliminate credit card debt
What’s the best strategy to pay off your credit card debt? That depends on your money mindset. Paying off the credit card with the highest interest rate is the wise money decision. However, paying off the credit card with the lowest balance takes less time and provides a feeling of accomplishment which may be the motivation you need. Want to understand how much you are paying in credit card interest each month? Savvy Ladies has a free credit card finance charge calculator.
Plan for retirement
Americans are not saving enough for retirement. The SECURE Act was signed into law in December 2019 making it easier for small business owners to offer retirement plans and allow part-time employees to begin saving through these traditional plans. It’s never too early or late to save for retirement, even if it’s a small amount invested in a 401(k), 403(b), or IRA. A disciplined habit of contributing to your retirement each month guarantees your money will grow over time and you will have enough saved to last through your retirement years.
For more information, visit the SavvyLadies website.