This week: mindsets to mend overspending habits, workplace happiness, debt tackling tactics, 2018 money mantras, personal finance happiness
Overspending is a nasty habit that is not diminished by making more money. Whether someone makes $30,000 or $500,000, people still struggle with over-swiping their credit cards. The fact that outstanding credit card debt topped $1 trillion in the first quarter of 2017 should send huge warning signals that our overspending needs to be addressed. How do we shift gears into money mindfulness? Here are 4 important mindsets to try out next time you are tempted to get carried away at the checkout line.
Embrace the reality of your financial situation.
Taking the time to sit down and look at your financial facts on paper can effectively shift your perspective. An honest look at your spending habits starts with investigating everything you spent money on in the last few months. Examine money spent on housing, food, gas, entertainment, and clothes. Know exactly where your money is going. It may be painful but if you have the courage to dive deeper into your financial awareness, you can create more financial freedom for your future.
Pro-tip: If you need the extra push to embark on your financial investigation, look into the latest money apps that are designed to do the heavy lifting for you. (Mint and Wally are popular downloads.)
Budgeting doesn’t have to be a bore.
After analyzing your daily spending habits, it’s time to create a custom-fit budget. If the “b” word brings up bitter sentiments in your mind, it’s time to rethink what the word really means. Rather than allowing budgeting to become a dreaded topic, realize that it’s a powerful tool and one of the key components to managing money (especially when you are trying to pay down your credit cards.) Budgeting is trial and error. There’s no one-size-fits-all.
Pro-tip: There are a variety of budgeting techniques designed to help you out. Consider the envelope budget: figure out how much money you want to spend on each element of your life, then put said cash in a labeled envelope. When the cash is in the envelope, you’re done for the month.
Cash is a powerful way to cut spending costs.
It sounds simple, but practicing a cash-only spending discipline could make a major difference in your financial outcome. Try only using cash next time you line up at the register. It can help curb spending and provide a tangible indication of how much money is leaving your possession. Even opting for your debit card can make a difference in your spending habits. Focus on keeping within the boundaries of what funds you actually have available.
Small spending alterations can make a major difference.
Little decisions to improve financial awareness can add up to a meaningful change in your life and save you big time. Mindful spending can look like cutting back on your coffee trips occasionally, or how often you eat out with friends. Simplify saving tactics by focusing on one area at a time. For example, try just focusing on ways to spend less on food.
According to a recent report, only 35% of U.S. workers are actually satisfied with their financial situation. Contrast those statistics with the 48% satisfaction rate from 2015, and you have a major case of a negative money outlook. In fact, one-third of the workers from this poll also said their current financial concerns are affecting their lives in a negative way.
So, what’s causing spiraling, financial negativity?
According to the poll, 50% of the workers said they had experienced a major, negative financial event including:
- Going through an expensive divorce.
- Borrowing money from friends and family.
- Incurring a significant medical expense.
Rates and debt are rising faster and higher than wages. To top it all off, Americans simply aren’t saving enough money for emergencies. Nearly a quarter of Americans have no emergency savings. Period. Sadly, when it comes to debt and loans, Americans are in even worse shape. This recent stat shows that the average household credit card debt was $7,996 during the second quarter of 2017 (that’s up 5% from a year earlier.)
What’s the good news?
Despite the current statistics, there are solutions to this lack of financial satisfaction in the workplace. Employers can help frustrated workers by establishing programs and financial counseling tools that are designed to assist them in making better financial decisions. Ultimately, it’s up to the worker to take this information and learn to make better financial choices. It’s time to take the lead in managing your own finances.
Pro-tip: There are countless forms of support to guide you along the way (Hello personal finance apps!)
In a rising rate environment, how does one stay afloat financially? As the Federal Reserve increases interest rates, your credit card rate will become more expensive. But the good news is that there are ways to reduce (or even eliminate) credit card interest. Take a look at three solid strategies that can help you deal with expensive debt.
A Balance Transfer.
A balance transfer will enable you to pay a low introductory rate for a fixed number of months. While some balance transfers have fees, there are others that do not (make sure to do the math first before the transfer.) If you think it will take 18 months or longer, a balance transfer fee will usually pay for itself, but if you think you can pay it off in 6 months, it probably makes sense not to transfer the debt. Pro-tip: Sites like NerdWallet and MagnifyMoney can assist you in finding the best balance transfer offers. Take note that you are typically not allowed to transfer debt between two credit cards of the same issuer (pay close attention to co-brand credit cards.) Avoid the temptation of the lower monthly payment as your monthly payment will likely go down during the promotional period. Simply put, pay as much as you can towards the debt!
A Personal Loan.
Personal loans can offer a lower-cost alternative to credit card debt. They typically have a fixed interest rate, so if the interest rate rises, you will not be stuck paying a high rate (unlike most credit card contracts.) With a personal loan, one can actually shop for their rate without impacting their score at most lenders.
Pro-tip: Mind your origination fee. Comparing APR’s is a great way to shop if you do not plan on paying off your loan early. If paying off your loan early is your thing, you may want to avoid a loan with an origination fee.
Ask Your Credit Card Company for a Lower Rate.
While the best way to reduce your interest rate dramatically is by way of a balance transfer or personal loan, making a simple call to your credit card company and asking for a lower rate is a great trick.
Heads up: The interest rate reduction will not be massive, but every little bit can help. Lowering your rate is a powerful way to get out of debt even faster, just make sure you do not continue adding to it.
As we close in 2017 and approach a new year, it’s common to have financial concerns buzzing through our brain. This is a time to take a deep breath and realize how far we’ve come with our personal finances and overall goals. This upcoming year offers a fresh financial start so let’s take a look at 5 money mistakes to avoid while we navigate through 2018.
Forgetting your emergency fund.
Neglecting to contribute to one’s emergency fund is actually quite commonplace. A whopping 57% of U.S. adults have less than $1,000 in the bank, while 39% have zero savings. That’s a scary thought because the longer you go without a safety net, the more you put your finances at risk. It’s a great idea to have at least three months’ worth of living expenses set aside. Bonus points if you can set aside 6 months of expenses.
Not contributing to a tax-advantaged retirement plan.
Saving for retirement is super important and it’s crucial to take steps to lower taxes, but if you don’t contribute to your retirement plan next year, it could interfere on both fronts. For instance, in 2018, you can put $18,500 into your 401k if you are under 50. Are you 50 or older? You could get a $6,000 catch-up that raises this limit to $24,500.
Avoiding investments in stocks.
Putting money aside for retirement is awesome, but not investing it could be a complete disservice to your portfolio. In fact, 60% of Americans are investing too conservatively for retirement (which means the potential of not having enough income to fund their golden years.) While it’s true that bonds are a more stable investment, they also give a much lower return over time. Consider switching up your strategy and adding stocks to your portfolio.
Adding up credit card debt.
If you want to come out financially clean in 2018, avoid racking up credit card debt at all costs. More debt means more interest charges, and that’s especially harmful if you want to borrow money in the future. Avoid becoming a credit card debt statistic. Stick with a budget, save wisely, and pay off high-interest rate cards first.
Buying too much house.
The fact that 39 million Americans cannot actually afford their homes is a huge red flag that spending habits need to change. As always, think twice before investing a home purchase that you know you’ll struggle to keep up with.
Pro-tip: As a rule of thumb, your housing costs should never exceed 30% of your take-home pay. Resist the urge to buy a home that is bigger than you actually need, and adjust your expectations accordingly.
We often hear people debate whether “money buys happiness,” but what if just the right amount of money made us happier? Science is catching up with our common sentiments that money is associated with wellbeing. Is the logic true that having a higher net worth and lower debt means greater money happiness? Let’s take a look at the facts and find out.
What is financial well-being?
According to recent research by the Consumer Financial Protection Bureau (CFPB):
“Financial well-being can be defined as a state of being wherein a person can fully meet current and ongoing financial obligations, can feel secure in their financial future and is able to make choices that allow enjoyment of life.”
Their research indicates that to retain well-being, we need to have enough funds to maintain our lifestyles and dissolve our debts. You need the confidence to compare yourself to your own standards,(not those of others,) stay motivated, and believe in your ability to manage financial outcomes by controlling impulses and planning for the long term.
The Four Dimensions of Financial Well-Being.
Having consulted psychologists and personal finance experts, the CFPB further defines a state of financial well-being as one wherein you:
- Have control over day-to-day, month-to-month finances;
- Have the capacity to absorb a financial shock;
- Are on track to meet your financial goals, and
- Have the financial freedom to make the choices that allow you to enjoy life.
What’s the takeaway message here?
Ultimately, our personal relationship with money is what defines our financial future. As the minimalist philosophy swirls through the mainstream, we are reminded by prominent figures that having less can actually give us more.
Does having sufficient funds affect our mood? Absolutely. But more money doesn’t necessarily mean fewer problems. When our money mindset is less centered around buying new things, and more focused on eliminating stress, there is a newfound freedom.
We can allow financial-well-being to be a result of the joy and contentment we feel from living a full, vivacious life – one where money plays a supporting role, but isn’t the necessarily the star of the show.