Steps to Financial Freedom in the New Year
Now that the new year is in full swing it may be time to ditch some of the resolutions you have not kept and start pursuing some that will make a real difference in your life. Having financial goals might just be the thing that could change your life. But what steps can you take to reach the dream of financial freedom?
The first step is to determine what your goals are for the year and then for the next five years. It’s important to set short term and long-term goals. Every person and every family has different goals so be careful not to compare yourself with others. One person may set a goal to purchase a car, someone else might be trying to buy a home and another might be planning to take a vacation or paying for their child’s education. Others may just want to get out of debt so that they don’t feel like they work from paycheck to paycheck. All of them are great reasons to have a budget and save to achieve their goals.
Next, determine all your income and all of your expenses. Fixed expenses include your mortgage, any loans, insurance, school loans, or any payments that are the same each month. Your flexible expenses include anything that changes month to month (utilities, credit card bills, leisure activities, household expenses, etc). Set an amount for each category, even an estimate if you must. Find some type of budget book or online tool to help track your income and spending. If possible, when paying bills, use auto pay so that you never forget to pay on time and then have additional fees to pay.
After you determine your income and expenses then you can decide how long it will take to reach your goal. But, before you begin tackling the big goal, you will want to set up an emergency fund. A savings that you have when something breaks or the car needs new tires or you need to pay an unexpected medical bill. When you have an emergency fund then you don’t have to use your credit card or rely on savings for to meet your goals.
A good start is to save about $1,000. This is not your vacation fund or “I wish I had a new TV fund,” This is your emergency fund! It may take a while to get to the amount you want in that fund, but be consistent each month. Even putting a little aside (maybe from your specialty coffee runs, which really can add up) will be a great start. If you don’t have that emergency fund you will continue to use your credit card and the cycle of never having extra money or not reaching your goals will continue.
After you have your budget and your emergency fund, you can begin paying down your credit cards. First stop using them if you cannot pay them off each month! Use your budget to determine and meet your needs. Then start with the credit card with either the highest interest or the smallest total amount owed. Sometimes paying the smallest one first helps to get the ball rolling for paying off all of them. It gives you the confidence that you can accomplish it! After you pay off the first credit card use the money you paid towards that card to add to the next card. Continue to do that until you have all your debt paid. Start with your credit cards and then move on to your other debts. Possibly car loans, school loans and then mortgages. Remember this is a process. It will take time to achieve financial freedom. But take the small steps now to reach your goals in the future.
Just to note. Don’t deprive yourself of all fun! When you do that you probably won’t succeed. Just make sure you have a section of your budget for entertainment. And save for it! Then you can continue to take the steps to meet your big goals!
Cheryl Kaczor is associate professor for West Virginia University Extension Services and is a families and health agent in Marshall County. She has a master’s degree in community health promotion from WVU and a bachelor’s degree in home economics from Rutgers University.