This week’s blog post is written by guest author Jayla Wilson.
Happy New Year! 2020 is finally over and the season for new beginnings and opportunities has just begun. It’s time to let go of what went wrong last year and start planning out goals for this year. While exercising and reading more are great New Year’s resolutions, I hope saving money and improving your financial state is also on your list. Read below for tips on making 2021 the year of building wealth.
- Start Saving Now
Don’t just say you’re going to save more. Make your savings goal specific and measurable. Are you saving for emergencies, a vacation, a new car, home down payment, etc.? How much do you want to save?
Once you’ve determined the amount you’re going to save, set the date you’ll save it by. If you get paid via direct deposit, save consistently by having your money split between your savings and checking account. You can also schedule automatic transfers from your checking to your savings.
Use large windfalls of cash such as work bonuses and tax refunds to help you reach your savings goals quicker.
- Monitor & Build Your Credit
Credit plays a critical role in building wealth. Whenever you use credit, take out a loan and make or miss a payment, that activity is reported to credit agencies, and kept on file for seven years.
Many companies determine whether they want you as a customer and how much to charge you based on your credit history. Occasionally, companies make mistakes when reporting your credit activities and this could negatively affect your future credit capacity. When was the last time you checked your credit report? Pull your credit report for free at AnnualCreditReport.com.
If you find that your credit is not in the best standing or that you have a short credit history, consider seeking the guidance of a certified credit counselor.
- Reduce Debt
Improve your credit by paying off debt. Find out the different types of debt you have, the total amount you owe, and the interest rate for each debt. If possible, consolidate your debt with 0% balance transfers or student loan refinancing. If not possible, use the debt snowball or avalanche method to aggressively pay off each of your debts.
The debt snowball method focuses on paying off the smallest amount of debt first and saving your largest debt for last. The debt avalanche method consists of paying off debts with the highest interest rates first. In both approaches, as you aggressively pay off one debt, all other debts should only receive their minimum payments. Once a debt is repaid, the money once allocated to that debt should be added to the minimum payment of the next debt you want to pay off.
- Create a Budget and Track Expenses
Create a monthly budget to avoid overspending and getting behind on bills. Include everything you expect to spend money on in that month.
Rent, car note and insurance are due at the same time each month, so they’re easy to remember to include in your budget. However, you may forget to include expenses like eating out, fuel and entertainment. Start keeping track of your daily expenses so that you’ll have an idea of everything your budget should cover. If your expenses outweigh your income, cut out the non-necessities.
- Choose Paper over Plastic
Swiping credit/debit cards is more convenient than counting out cash. However, mindlessly swiping makes you unaware of how much you’re spending, which leads to going over budget. Although using cash isn’t always convenient, it helps you track how much you’re spending.
Give your credit cards a break, and use your debit card for major necessities only. Limit yourself to a certain amount of cash each week ($50-100) and you will likely rethink some purchases.
- Invest in Yourself
Saving money, improving your credit and paying off debt is the foundation of wealth building. Once you’ve done these things you will be able to invest in yourself, and others will also be willing to invest. You will have the credit history to be approved for a small business or home loan and the money management skills to successfully run your business and pay your mortgage on time. Let 2021 be the year you change your financial future. Create your wealth building plan today.