One financial goal to rule them all
One of the frustrating things about money is that our goals are often years away.
Wouldn't it be great if you could boil down into one simple goal everything you need to get your finances on the right track? Like what they call a swing-thought in golf, what one thing should we keep in the front of our minds when it comes to money?
The possible list may seem daunting. From retirement to mortgages and credit cards to insurance, our financial lives have become increasingly complicated over the last 20 years. So how can we possibly boil everything down to just one idea? Let me explain.
Last month I had the opportunity to meet several other personal-finance bloggers at a conference in Las Vegas. It was great to meet folks I've known for a long time but never actually met face-to-face. At the conference we were eating lunch one afternoon and the discussion turned to the goals we had established for our Web sites. Most of us, myself included, described our goals in terms of numbers, similar to how most of us probably think about financial goals. After several of us talked about our goals, David from MoneyNing said something that I thought was quite profound. His goal was simply to do a little better each month.
David's insight really hit home for me. In fact, from everything to finances, this Web site, my work, and family, I've been focused on how I can make incremental improvements one month at a time. And this is a great way to think about financial goals.
One of the frustrating things about money is that so many of our goals are years away. We may have as a goal saving $1 million for retirement, for example. While that may be an appropriate goal, it may take us 30 years or more to reach it. The same goes for the goal of getting out of debt, saving an emergency fund, or just about any other financial goal. So let's apply David's wisdom to two common money goals to see how it would work.
Saving up an emergency fund. Building up an emergency fund is the first financial goal anybody should have. Living paycheck to paycheck is miserable, and a rainy-day fund is the first step in your journey toward financial freedom. The problem is that many set as their goal saving three to six months of income. While that's fine, it could take years to achieve that goal. So for now, let's just set our goal as having a little more in our emergency fund next month than we have right now.
Of course, the more you can save the better. But even if we improve by just a few dollars, at least we are moving in the right direction. Here are some steps to take now if you haven't already:
- Open a savings account. Open a savings account at your bank or credit union where you can build up your emergency fund. If you are looking for options, check out our list of online banks and high-yield savings accounts.
- Automate your savings. Have a certain amount of each paycheck automatically deposited into the savings account. It's very easy to do, and your HR department or bank can walk you through the process. Even if it's $10 a month, at least you're moving in the right direction.
- Don't touch your savings. Except for true emergencies, leave your savings alone! Spending what you saved the month before gets you nowhere fast.
- Re-evaluate each month. Each month ask yourself if you could be saving more. If so, increase the automatic savings amount, even if it's just by a few dollars.
Eliminating credit card debt. Having just paid off my final credit card last month, I can tell you it feels great to be out of credit card debt. And that's true even though all of my credit cards offered 0% APR on balance transfers. With these cards, I was able to transfer a portion of my home-equity line of credit to a credit card and pay no interest for 12 months.
For many, however, climbing out of credit card debt can take years, and it's easy to get discouraged. So let's take it one month at a time. Our goal is simply to have less credit card debt next month than we do right now. Here are some steps to take to help you reach this one-month goal:
- Put the cards away. If you are having a hard time not using the credit cards in your wallet, take them out and leave them at home. If you don't have the card with you, you can't use it. However you do it, avoid more credit card debt at all costs.
- Use your debit card or a prepaid card. You can get the same convenience of using a credit card with your debit or prepaid card. These cards are part of the Visa or MasterCard networks, so they are accepted just about everywhere that accepts Visa and MasterCard. And if you don't have a bank account, there are plenty of prepaid credit cards with no fees or very limited fees.
- Pay your credit card bill on time. At the absolute minimum, make sure to pay your bill on time. The last thing you need is a late-payment penalty and a negative mark on your credit history. By paying your bill on time and not going into more debt, you'll slowly work your way free of credit card debt completely.
- Pay more than the minimum payment. Even if it's just a few dollars more, pay more than the minimum payment. And each month, increase this extra payment, even if the increase is just a few dollars.
You can of course apply this approach to any goal, financial or otherwise. The key is to make steady progress month after month.
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