As a result of COVID-19, many people are struggling to rearrange their budgets and figure out what to do next. You may need to rethink your spending after months spent dealing with shortages due to a job shift or layoff. Are you ready to set up a plan for financial success? Here are some tips that can help reevaluate and plan for your financial future.
3 Steps to Take Towards Financial Success
1. Evaluate your financial priorities.
In order to achieve financial success, you must first define what financial success means to you. For some people, financial success means not living paycheck to paycheck and having a solid savings account that will allow them to take care of unexpected expenses. For others, it may mean getting out of debt or achieving a specific savings goal, from paying for your children’s college to having adequate savings for retirement.
Before you start creating your budget, you must clearly define your financial priorities.
- What’s most important to you?
- Do you have a specific goal that you’re saving toward?
- Is there any debt that you need to pay down?
- What expenses do you need to manage?
Consider the things that are important to you, because this will vary from person to person. Ideally, you want your spending to reflect the things that matter in your life. For example, if your exercise routine is important, you can justify spending more money on your gym membership, workout clothes, and home equipment. On the other hand, if your gym membership is never used, your equipment is gathering dust, and your yoga pants see more time on the couch than they do trips to a yoga class; it most likely doesn’t make the cut for financial priority. Likewise, if you prioritize traveling with your family, including regular vacations, you may need to cut spending in other areas so that you can maintain a larger vacation budget.
It is crucial to finalize these priorities before developing a financial plan or budget. This will help keep and get you to financial success.
2. Take a look at your current spending.
Take a look at your bank account and evaluate your cash spending. Where is your money actually going? Most importantly, is that spending in line with your financial priorities? Or do you frequently impulse buy? Ideally, you want the way you spend your money to line up with your overall goals.
- What spending is really unnecessary?
Take a look at all of your monthly memberships: entertainment memberships, gym memberships, and other subscriptions that come out monthly. Consider how many you’re really using. For example, if you subscribe to multiple streaming services, you might find that one or two of them have all the content you really watch – and by removing additional services, you can save hundreds of dollars a year.
- How much of your income is your impulse spending taking?
If you’re guilty of picking up an “extra item or two” each time you go into your local store to pick up necessities, that additional spending can add up in a hurry. Likewise, browsing through stores for items that you don’t really need can quickly eat into your budget. Take a look at how much of your income your impulse spending really takes up – then decide how many of those items you would actually miss, if you didn’t purchase them.
- Are there places where you can whittle down your existing spending?
Take a hard look at your housing expenses including utility bills. If you’re current spending and lifestyle is not helping reach your financial goals, then maybe taking bigger steps towards success need to be taken. For example, if you realize that the place you live in is too big for your needs; you can search for a smaller or different place. If your utility bill is consistently higher than expected, think of creative ways to reduce utility spending. Things like using less water, running heat/AC less, and shutting off lights when not needed are small actions but can contribute to financial success.
3. Create a budget.
Your budget is not a static unchanging list of numbers that you have to abide by each month. Rather, it’s an evolving, growing arrangement that allows you to manage your finances and keep up with your monetary needs. As you create your budget, important items to include are:
- Fixed expenses: These include your mortgage or rent payment, utility payments, and other fixed amount monthly bills. Include memberships and subscriptions that you’ve chosen to keep because they fit with your financial priorities.
- Variable expenses: Some expenses like your grocery and gas expenses occur every month, but might change month to month depending on your needs. Although these are variable expenses, it’s a good idea to include and track them to know what you have spent for that month. You don’t have to stick to the bare minimum when it comes to food and other expenses, but you should consider whether you need to reduce or cut down expenses in those areas to make room for other priorities.
- Entertainment: Most people will not stick to a budget that has no room for entertainment and other impulse spending. Make entertainment a regular part of your budget. You can continue to enjoy many of your favorite activities on a more limited basis or with reduced spending, if you feel it lines up with your priorities.
- Savings: A minimum of 10% of your income should go back into an emergency savings account where you can access funds to take care of unexpected medical expenses, home repairs, and other emergencies. If you have other financial priorities – like setting up a college fund, vacation fund, or a big purchase fund, you may also want to allocate a specific portion of each paycheck to that goal. Ideally, you should take the savings portion of your budget out of your paycheck first, before you start spending.
Let HFCU Help
If you’re interested in taking steps towards achieving your financial goals, contact Heritage Financial Credit Union. Our goal is to provide you the opportunity to reach financial success by offering educational tools and resources to aid you in this journey. Call us at (845)-561-5607 with any questions you may have.