No one likes hearing the “B” word. The thought of the word can cause stress, anxiety, and even anger. Still, it seems to be gaining ground—the ultimate “B” word being BUDGET. A 2013 Gallup poll showed that only 32% of US Households maintained a budget; in 2016, it showed 41%. Currently, the numbers show over 55% of people see the need to budget. People are more attuned to the need, and a few factors contribute to this jump; the pandemic, increased inflation, and the ease of tracking are the top three reasons. Realizing how important it is to budget, save and decrease debt is critical, but many find it challenging to get started and continue. Here are a few tips to help you start the new year strong and finish even stronger.
BUDGETING
Over half of Americans see the need and the benefits of budgeting, and more than 8 in 10 of those who budget say it’s helped them get out or stay out of debt. But, also say budgeting seems overwhelming, and they are not sure if it is something they can continue. The struggle is real, but there are ways you can live below your means and start saving without causing you stress and anxiety. One option may be just tracking your expenses rather than a full-blown budget. Desmond Tutu wisely said, “there is only one way to eat an elephant: a bite at a time.” What he meant by this is that everything in life that seems overwhelming and even impossible can be accomplished gradually by taking on just a little at a time.
Whether just tracking or a full-blown budget, living your best financial life begins with knowing how much money you make and where your dollars are going. One way to start is by automating bill payments and savings deposits. These small steps can help you meet your financial responsibilities and goals.
Creating a budget allows you to track, review, and modify where your money is going each month. There are many rules, tools and techniques to help you get started. For example,
The 50-20-30 budget rule.
- Apply 50% of your take-home pay to needs, such as your mortgage or rent, utilities, groceries, and transportation.
- Apply 20% to savings, investments, and debt payments.
- No more than 30% to your wants or flexible spending, such as travel or entertainment.
Percentages may not be exact, you can modify them to work for what works for you and at AODFCU, we have the knowledge, tools, and resources to get you started.
SAVING
According to the Bureau of Economic Analysis, Americans saved an average of 6.4% of their incomes as of 2022. These savings are an improvement over previous years, but Americans could be better savers as a whole. Nearly 70% still need to get a $1,000 “emergency” fund in the bank. According to the Federal Reserve Bank’s 2020 Report on the Economic Well-Being of U.S. Households, nearly 40% of Americans would struggle to come up with $400 to pay an unexpected bill. One bite at a time, and that first bite to saving is just getting started and an excellent way is to have specific goals in mind.
A few goals to consider:
- Have an Emergency Fund – Have a reserve set up to guard you against financial disasters. Start with getting to $1000 andThen work on the suggested amount which is up to six months of income.
- Save for What You Want – Start setting aside money for something you dream about, from a small item like a new outfit to larger items such as a new car, a house, or kids’ college accounts.
- Put Savings on Autopilot – Avoid the temptation of overspending or to splurge when you receive your paycheck by setting up automatic contributions to your savings account. Setting up automatic contributions will allow your savings to grow without thinking about it. Again, super easy; just let us know when you are ready to start.
- Keep Accounts Separate – Set up separate accounts from your regular accounts. Different accounts make it easier to see your progress and less tempting to spend money. The good news is that AODFCU makes it easy and does not take much money or time.
A few savings accounts that AODFCU offers:
- Regular Savings Account: This account only requires a $25 deposit and makes you, the member, a part-owner of the credit union.
- Christmas Club or Future Dream Account: This account makes it easy for you to set aside money for holiday spending, travel, or a future dream purchase. With an initial deposit of $5, you can start saving today. Automatic annual distributions occur on November 1st of each year. You can have your funds mailed by check or transferred into one of your AODFCU accounts.
- Kids Club Account: This account is designed for children from birth to age 6. With an initial deposit of $5, your child can start saving for the future. Teaching kids to save and budget is one of the best ways to ensure they are more prepared for the future.
- Share Certificates: Share Certificate Accounts make it easy to save. Dividends on Share Certificate Accounts can be mailed to you in the form of a check or paid to one of your other AODFCU accounts, or dividends can remain with the Share Certificate Account (compound).
- IRA Accounts: Saving for your retirement is something that every individual should have on top of their financial priorities. It is recommended that retirement savings begin as early as possible, which is why AODFCU offers a variety of Individual Retirement Accounts (IRA Accounts) to help your savings.
Decrease Debt
Debt seems to be a fact of life for many Americans. Report after report finds that 8 in 10 Americans are in debt in some fashion – most often because of a mortgage – but nonetheless, in debt. Being in debt can be comfortable, but sometimes comfort comes at a cost. Start by making some small sacrifices. Lower spending and getting rid of your credit card debt are two simple ways to get started. If you’ve always used a credit card or some form of debt, it’s hard to make that change in your life – but a short-term sacrifice can lead to a long-term financial reward.
A few ways to lower your debt:
Reduce Expenses
Take a good look at your expenses and inventory what you truly need and what you can live without. Do you need that new outfit, every cable channel, that expensive cup of coffee? Breakdown what you can live without, get rid of it then stop accumulating debt. This is a simple step but not always an easy step.
Lower Credit Card Debt
Set personal limits, and don’t go beyond them. Only charge items you know you can pay off each month. If you already carry a balance, pay more than the minimum payment (or the most you can afford) to bring down your principal balance. If you can’t pay off your balance every month, determine which of your cards have the highest interest rates and try to pay those off first. Here are a few tools to help you out Understand Your Credit Card Statement | MyCreditUnion.gov
Consolidate
If you are having trouble keeping track of payments and balances on your debts, you may want to consider consolidating them. Debt consolidation loans are typically used for unsecured debts, for example personal loans, credit cards, and student loans. Instead of dealing with multiple bills, you have the ability to manage one consolidated bill.
Consider Refinancing
You may be eligible to get a lower interest rate because of changes in the market or if your credit score has improved. By lowering your interest rate, you can lower your monthly payment. To start, check with your current lender to find out about refinancing options. That lender may want to keep your business and be willing to reduce or eliminate some of the typical refinancing fees. Next, comparison shop by comparing all the terms different lenders offer, particularly interest rates and fees.
All of the above are the “one bite at a time” that will lower your debt and help you not be so afraid of the “B” word. At AODFCU we are a team and as a team we stick together. Reach out to us with any questions and lets make things a little less overwhelming.
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