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Heading into the new year, it’s impossible to avoid talk of goals and resolutions.
So what are some easy money resolutions you can knock out in the new year and set yourself up to be even better off in the future?
I’m Dylan Lewis from The Motley Fool and in this FAQ we’re going to go through some of the easiest ways you can be better with money make future you very happy.
0:44 – How to Save Money
3:49 – What to do with Extra Money
There are a ton of different surveys asking people what they are focusing on with their new year’s resolution.
Next to dieting and exercising, being better with money is almost always one of the most common responses people offer.
Let’s start with keeping more money in your pocket.
The foundation of good personal finance practices is to build a budget and understand the money that is coming in and where it is going when it is heading out.
Budget-building sounds daunting, but it’s actually pretty simple. Take your paycheck and subtract the major non-negotiable expenses you pay regularly like your rent or mortgage, utilities, groceries, your car bill, and healthcare costs.
Anything leftover is potential savings, and a negative number means there’s more going out than coming in.
Now how do you save more?
We’re going to look at a couple one-time fixes that will immediately save you big.
Seemingly every company in the world has been transitioning to a subscription model over the past couple years — cable, phone, granola bar companies.
Now maybe those purchases are truly things you need, but there are probably some you can either cut down or cut out altogether.
For example, in 2019 I looked into the wireless plan I was on. I had an unlimited data plan with one of the big 4 carriers, for all that I was paying $55 per month. That’s not too bad, but there are far cheaper options out there.
I switched, and going from $55 per month for my phone plan to $25 means I’m saving over $350 per year. Like that, that’s crazy.
The same is probably true for your cable bill.
Those are the common recurring payments, but there are plenty of others. If you’re a house with multiple streaming accounts, consider having one at a time, watching the shows you care about, then closing the account and opening up another.
If you’re looking for more ways to trim, take a close look at your credit card statements. Go through and circle all the recurring expenses.
And lastly, one of my favorite ways to save — before you make any online purchase, go to Google Shopping and see if the product is available for less elsewhere, and once you’ve landed on where you’ll buy it, search for promo codes for that website. I’ve easily saved $5 or $10 on purchases by taking the 30 seconds to do this.
Okay so if you’re the average person, that’s about $1000 in savings over the course of the year right there. And if you couple that with routine changes like cooking more and eating out less, you could save even more.
So with your pockets a little fuller, what should you do?
What to do with extra money
Do you have some savings set aside in case something happens? We like to call this an “emergency fund” and the idea is to have enough money around to be able to cover a major expense if it pops up.
Ideally you build it up to 3-6 months of non-negotiable expenses, but $1000 is a great place to start.
With some money set aside, if you have a retirement account through work, focus on that. It’s pretty common for employers to match contributions up to a specific amount. Make sure you’re contributing at least enough to max out their match — it’s basically free money as long as you stay at the company long enough for it to vest.
Then, do you have high interest debt? We’re talking credit card debt, or anything over 8-10%. If you do, use the extra money to pay that down as soon as possible.
After that, consider expanding that rainy day fund you’ve got from the $1,000 to 3 to 6 months of living expenses — this is money you’ll keep in your checking or savings account.
Next if you have other lower interest debt, you can consider paying it down or focusing on investing more of your money. If you go the investing route, you can either contribute more to your employer-sponsored retirement account, or open a Roth or standard IRA with a firm like Vanguard and buy index funds.
There’s more you can do of course, but if you can make it to this step you’re in pretty great shape and can start thinking about longer term goals.
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Author by: The Motley Fool