The holiday season can be expensive, with the purchasing of presents and overindulging in food and beverages, and many people overspend and enter the New Year in a financial hole. The New Year is the perfect time to take charge of your finances and pave the way to a more secure future. While the idea of managing money can seem daunting, it’s an essential step toward financial stability and freedom. This comprehensive guide to getting your finances in order in 2024 could be just what you need.
Why Financial Control Matters
Financial stability brings you peace of mind, reduces stress, and enables you to make choices aligned with your goals. Being in debt is stressful. Not having any savings for a rainy day is stressful, too, while seeing your earnings disappear into the ether is demoralizing. Money worries are also one of the leading causes of issues in relationships. In short, not having a grip on your financial situation only has negative connotations.
Crafting A Detailed Budget
A well-crafted budget is the cornerstone of financial stability; you must know your precise income and where your money goes each month. Open a spreadsheet and list all your income streams in one column. You should only list guaranteed income streams, such as your take-home salary. Income from stocks and shares dividends, winnings from the Bovada LV sportsbook, and bonuses from work are not guaranteed, so listing these under your income is not advised. Why? Because you may find yourself relying on this money, yet it may never materialize.
The next step is more time-consuming because it involves writing down all your expenditures. Create another column in your spreadsheet labelled “essential expenses.” Costs you cannot avoid paying go in this column, including rent or mortgage payments, utilities, transportation, etc. In another column, jot down every discretionary expense, including subscriptions to Netflix and things like that, eating out, gym memberships, and other items, products, and services that you like but are not needed for everyday life.
Your final expenses column should detail all your short-term debts, like credit cards, store cards, and unsecured loans. Hopefully, the total cost of your expenditure will be less than your income because that means you have disposable income each month. If not, you must make immediate changes; otherwise, you risk falling deeper into debt.
Tackling Debts Head-On
Debt can feel like a weight dragging down your financial freedom. Few things in life are as demoralizing as working hard every month only to hand over a significant percentage of your earnings to a credit card provider when you get paid. Prioritize high-interest debts first, and see if you can commit to paying off more than the minimum because doing so massively reduces the time it takes to clear your balance.
For example, you may have a $2,500 credit card debt that charges 25% interest, and you set up a direct debit to pay the minimum each month. It would take 26 years and 11 months to pay off your balance, and you would pay $6,975 in the process. However, committing to paying $100 each month regardless reduces the time to clear your balance to two years and 11 months, and the total repaid plummets to $3,406.
If you have multiple balances, try paying more than the minimum while paying the most into the balance carrying the highest interest rate. Once that is repaid, use the money you were repaying to pay more off the next highest interest rate, and so on. This creates a snowball effect that results in your debts disappearing faster.
The Importance Of Saving For The Future
Saving money isn’t only about setting money aside; it’s a commitment to your future self. Once your debts are paid off, or under control, you should start building an emergency fund that covers three to six months’ expenses. Even small contributions add up over time, so consider automating your savings to ensure consistency.
An emergency fund means you can still pay your bills should anything happen to you or your employment status. Nobody plans on becoming ill or getting injured, but it happens. Furthermore, most of us believe our jobs are secure, but the recent COVID-19 pandemic showed that is not always true. Could you survive without an income stream for one month, never mind six months?
Additionally, it is never too late to start saving for your retirement. Take advantage of employer-sponsored retirement plans like 401(k)s and IRAs. Contribute regularly, especially if your employer matches your contributions, because it is essentially free money toward your future.
Planning for the future today sets the stage for financial security and freedom tomorrow. Consider investing in yourself through educational or professional development to increase your earning potential. Also, consider making long-term investments, such as in real estate or stocks, that you can fall back on later in life.
You may also want to increase your life, health, and disability insurance to safeguard against unforeseen circumstances while drafting a will and establishing an estate plan, which ensures your assets are managed according to your wishes should the worst happen.
Mastering your finances is not something that happens overnight, but it is a journey that begins with a single step. Creating a detailed budget gives you an oversight of your financial situation and allows you to change your expenditure.
By reducing debts, particularly those with high interest, you help free up more disposable income that can be used for a plethora of things, including adding to your savings and a rainy day fund. Planning for your future should start today.
Don’t be worried about seeking guidance on your financial journey. Financial advisors can provide tailored strategies to align with your goals and your unique situation. Embrace the start of the New Year as an opportunity to take control of your finances and pave the way for a brighter, more secure future.