Have you ever found yourself laughing at financial programs claiming to slash your debt and make you rich? Also, have you ever looked at your bank account and credit card statements and let out an audible groan? I’ve been there. The best time to start making changes to reach your financial goals was 10 years ago. The next best time to start is today.
2020 Financial Goals
One of my goals heading into 2020 was to get a better hold on my financial standing. Seeing the sheer amount of money going in and out of the bank account each month is exhausting.
Homeownership is not cheap, but I find myself making investments to upgrade features of the house such as flooring and lighting. I also have an amazing relationship with running which requires new trail shoes every few months. And a not so great relationship with Amazon. [guilty clicks] That has ended up in some stupid personal loans I should have been smart enough to avoid in the first place.
Financial stability while cutting out frivolous expenses and saving for a rainy day were priorities I have been looking for in financial planning. And no, I am not looking for some flashy system advertised online or on tv that makes me feel guilty about every dollar spent. I need something to help me form better habits.
I am super thankful to have stumbled upon “I Will Teach You To Be Rich” by Ramit Sethi (affiliate link). At first, I was skeptical of this being another flashy fake program. But when I set down to actually read the book, I gained some important principles that have led to paying off all debt aside from a mortgage and vehicle payment (both of which now have strong equity positions).
I don’t share this to brag. Rather, I want to pass along a few practical lessons learned in hopes they can help someone else not just pay off debt, but be able to enjoy the things you love.
Know Your Budget
Step one – I can’t do much without knowing what my income and expenses are. Period. I opened up a new spreadsheet, pulled up my bank account and credit card statements, and started documenting.
I took the time to write down all of my expenses. On variable bills, like utilities, I went back and averaged the past 12 months. I included all those recurring expenses and was surprised at how quickly those subscription services add up. Know what your debt, interest rates, and monthly payments are and when they’re due.
And yes, there were some cutbacks necessary when the expenses exceeded the income. That’s when I pared down the list to the absolutely necessary commitments and then I could build back in the nice-to-have things like internet, tv, and dining out.
Automate Your Expenses
One of the hardest parts of most financial planning programs I’ve found has been the work to stick with it every month. Then I realized I could automate everything.
As soon as my paycheck goes into the bank, I have automated withdrawals to pay my bills, monthly loan and mortgage payments, AND savings goals! I don’t let that money sit around or let those bills pile up on the table. That money has already been spent and I shouldn’t spend it elsewhere. And because I know what my budget is (step one), I know how to split those up over two pay periods.
I was able to get automatic and online payments for all bills except a pesky water company that still wanted a check. Turns out, my bank would allow free bill pay and take care of that for me.
Did you know many bill and debt payment due dates can be moved? I contacted respective institutions and requested a few of these dates be moved to better align with my pay periods.
Automate Your Savings
If you never start saving, you’ll never have it when you need it. I’m also guilty of saying “I have to pay off the bills before I can ever think about saving money!” If you don’t know how compound interest works, better start reading.
I set up an automatic withdrawal from each paycheck into three different types of savings to reach my financial goals.
1) A savings account separate from my checking for annual and upcoming expenses. Just because they’re not due this month, doesn’t mean they’re not coming. I use online savings accounts from American Express that provide easy online transfers and interest rates 10x higher than many local banks provide. That money sitting in your checking account earns nothing waiting on that bill due in 3 months. And if I’ve set aside this money ahead of time, it’s there when the bill is due – not tempting me from the checking account.
2) Retirement. I got WAY behind on saving for retirement in my 20s. I paid off my student loans, bought way too much beer, and didn’t budget anything. Setting a retirement goal that is attainable and automating a deposit each pay period made a huge difference. Retirement savings can be intimidating. Vanguard is the most user-friendly, lowest-cost investment firm that I’ve found and highly recommend.
3) A savings account for unexpected expenses. This is separate from the previously mentioned savings. Maybe the furnace goes out or I have an unexpected truck repair. A little deposit each month adds up quickly. If this grows beyond a set goal, I transfer it to pay off higher-interest debt. This is also where the money goes when I achieve spending under budget for a month. Or buy myself some nice running shorts.
Use Your Credit Cards
You never realize how much money we leave on the table due to a low credit score and resulting high-interest rates. A change of 1% interest can be the difference of thousands of dollars for even a modest-sized loan.
The key to making credit cards work for you is to use them and ABSOLUTELY pay your bill off in full each statement period. I have credit cards with $550 annual fees (referral) that more than pay for themselves every year just by using them to pay my utility bills. (And this is where I lose people if you haven’t already laughed and left.)
All of my expenses go on credit cards. This accomplishes a few different things.
- Keeping track of my expenses is easier when they’re all on one statement. I know what that maximum expense number is each month and can keep an eye on my spending throughout the month.
- Fraud protection is standard on most credit cards and one more step removed to protect your checking and savings accounts. I’ve used this when fraudulent charges have shown up and the credit card company has always returned my money.
- Spending on my credit cards and paying the full bill each month builds my credit score without paying interest and fees on loans. I was amazed at the difference in interest rate offered when I bought my pickup with a credit score over 800 vs previous purchases with lesser credit history and lower scores.
- Using credit cards that earn points toward your intended spending habits or goals can pay off. My credit cards reimburse me for several expenses including streaming services, phone bills, and groceries. I look back on spending before I made this change and I was missing out on literally thousands of dollars each year.
Not to mention that I have used points earned from using credit cards to pay for everyday expenses. Those points have taken me on countless holiday vacations and road trips that are filled with awesome memories, laughs and trail miles that’ll last a lifetime.
Identify Bad Habits
This has been the most difficult part to overcome in reaching my financial goals. It’s also likely made the biggest difference.
I knew when I was spending frivolously. We all know there are excess expenses in life. But I REALLY didn’t want to give up that Sonic Reese’s Blast on the way home from work after a stressful day at work. And I don’t have to.
Stressing about every small expense has never been productive. I usually end up going off the rails, throwing my hands in the air and saying, “I’ll start again next month.”
Instead, I looked at how I could change my habits. Instead of getting that large delicious peanut butter ice cream treat, I get a smaller size. I don’t have to get the largest meal at the restaurant and find I’m usually much more satisfied (and less stuffed) by getting a smaller portion steak (8 oz. vs 16 oz.). Or maybe it is holding those items in my Amazon cart overnight to ensure I really need them and it isn’t another impulse buy.
Because I have my monthly expenses outlined and automated, it’s much easier to see if I do have the money for that new pair of shoes or if I might need to downgrade a tier on that streaming service that I don’t watch much anyway.
TL;DR – Financial Goals
I know this got really long. But the truth is I could write pages and pages on the lessons I’ve learned this year by prioritizing my financial goals and expenses in life.
While all of this sounded really aspirational when I got started in January, it has already paid off multiple times over. I’ve established new spending AND saving habits that have already paid off debt years ahead of schedule. And most unexpected of all, these habits helped me weather the storm of an unexpected career change and a major pay cut in the middle of a pandemic.
And I did it while still enjoying the good things in life like new trail running shoes every 400 miles and a delicious Sonic Reese’s Blast on my way home from town.
So, if you made it this far, I highly recommend picking up a copy of “I Will Teach You To Be Rich” by Ramit Sethi (affiliate link) for less than $8 right now. No, this isn’t a sponsored post, I am just really thankful for the positive habits it’s helped me form and hope that someone else can benefit as well.
If you have any questions, feel free to shoot me a DM.