2020 is coming – Are your finances ready?
Quick notes
Set up a budget – or refine your current one – to get a headstart on next year’s spending.
Take a good hard look at your expenses. If they aren’t necessary, cut them out.
Accidents happen, so start building up that emergency fund.
The new year will soon be upon us. What better way to start a new decade than with a solid, financial plan in place. While you may not be too focused on personal finance in light of the upcoming holiday season, there are a few essential money management tips you should consider before the new year starts.
Bust out that budget
Create a budget. Just do it. If you haven’t been operating with a budget, now is definitely the time. By creating a budget, you’ll know exactly where all of your money is going each month. This is critical, as you’ll need to be well-versed in your finances when you consider taking on other expenses like a car loan or a mortgage.
Even if you think you don’t have any more room to save or cut expenses, you may surprise yourself. This year it was found that 59% of Americans are living paycheck to paycheck, yet they still spend about $483 per month on non-essential expenses. That figure totals $5,796 over a 12-month period – which is equal to a nice downpayment on a car or investment for a retirement fund.
While you’re creating your 2020 budget, look at your spending from the previous year. You can easily track your spending through your bank statements or by utilizing online personal finance tools like Personal Capital. If you noticed you spent more on eating at restaurants than loan payments or other bills, it’s time to get more disciplined about where your money is going. And trust us, there’s always room for improvement.
Be prepared for the worst
If you don’t already have an emergency fund established, now is the time.
Your emergency fund should consist of three to six months of total living expenses. This includes rent, loan payments, bills, food expenses, and whatever else you pay for on a monthly basis. A solid emergency fund will assure you that you can get back on your feet after an unexpected incident such as losing your job, getting into an accident, or needing to relocate last minute.
Having an emergency fund on hand is one of the most critical money moves. If you go without an emergency fund, you may force yourself into debt to pay for absolutely necessary expenses. That debt can compound over time, making it especially hard to pay back.
Your emergency fund should consist of three to six months of total living expenses. This includes rent, loan payments, bills, food expenses, and whatever else you pay for on a monthly basis. A solid emergency fund will assure you that you can get back on your feet after an unexpected incident such as losing your job, getting into an accident, or needing to relocate last minute.
If you’ve already established a healthy emergency fund, consider setting up a retirement or investment account. Essentially, these accounts earn money passively through interest rates over time. Setting up an investment account now will allow your portfolio to grow more and more each month without you having to lift a finger. This passive income, along with a budget and emergency fund, will help you be secure in your financial future in 2020 and beyond.
A deeper dive — Related reading from the 101:
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