Many of the blogs that we post here on our website deal with saving for various different things, including college tuition, emergency funds and retirement. Frankly, many of the tips that we give and assume that our readers earn enough money to make them happen. In many cases, while technically correct, some of the advice we give just isn’t feasible due to the fact that so many people today are living paycheck to paycheck. In fact, there are many people who avoid reading articles about finances because they don’t believe they have any options when it comes to saving for, well, anything.
But that’s not exactly true. Even people that are living paycheck to paycheck can usually put at least a little bit of money aside and let it start earning interest. In many cases, money itself isn’t the problem but more the mindset of the individual person. If that’s the case, the only way that you will ever be able to save is to let go of your old habits and your old excuses and adopt a newer, better mindset, one that sees you reaching your financial goals.
With that in mind we put together information that will help you in three different situations. The first is that you’re in debt and trying to dig your way out of it. The second is that you are breaking even and, while you don’t have debt, you don’t have any extra money after bills are paid either. The third is that you actually do have extra money but you don’t have any good ideas about what to do with it. All three come with different variables and different solutions, some of which may overlap. Enjoy.
If you’re in debt and trying to dig your way out of it, the first thing you need to do is stop creating more debt for yourself. Cut back on everything possible, stop making extraneous purchases completely and, if you need to, cut up your credit cards (but don’t cancel them). If you’re truly serious about getting out of debt then you should have no problem begging your own lunch, carpooling to work, swearing off of new clothes purchases and cutting out visits to restaurants.
We’ve talked many times about setting up a budget and now is definitely the time to do that. Not only will it help you to determine where and on what things you are wasting money, it will also start to change your mindset about how money works and how you can make it work for you.
From financial experts agree that forcing yourself to save money, even when you’re not making very much and trying to pay off debt at the same time, is difficult. On the other hand, if you can actually make it happen, the money handling skills you learn may very well pay off in the future, when your debt is paid off, and allow you to quickly start increasing all of your savings and retirement plans.
If you’re breaking even it may be that you’ve just finished paying down your debt (in which case, congratulations) or it may also be that you never got into debt in the first place (that’s good, by the way) but don’t exactly earn a lot of money either. Whatever the case may be, not having debt hanging over you gives you the perfect opportunity to start your savings plans, put together an emergency fund and possibly even start funding your retirement plan.
Your emergency fund should come first. What experts will tell you (and us too) is that you should have at least six months’ worth of money available In a liquid account, enough to pay a full six months’ worth of all of your bills. Setting up automatic money transfers through your job to fund this account is an excellent idea and, once you have it set aside, you’ll be free to move on to other saving tasks. If you don’t have the availability of automatic transfers you should simply get in the habit of going to your bank once a week and putting in a specific amount of money. (Having the willpower to not touch that money is one of the biggest skills you’ll need to master.)
Once you’ve saved up some money you’re going to need a plan. If you’ve saved up a substantial amount of money or you’re finally at the point where you’re making more money than you spending (the goal of all smart savers) the first thing you’ll want to do is put that money into an interest-bearing account like a money market or savings account. Both are quite safe and will hold your money while you figure out a plan to make it grow in the long-term.
Sitting down and prioritizing your financial goals would be next, something that you may consider doing with the help of a professional financial planner. While it’s true that you are now in the position that you are making enough money to fund a savings and retirement account, don’t let pride overcome your good judgment. A professional financial advisor can find suitable investment strategies for you based on your needs, your time horizon and your financial goals.
We’ve only briefly brushed on the top of all three of these different financial situations, but it should give you at least a good head start in knowing what to do next. Maybe the most important thing to take away from this blog is the fact that, in order to really change your financial life, you’re going to have to believe that you can do it. Believe in yourself, pick a plan, put that plan into action and be diligent. In time, your diligence will pay off.