For some people, money never seems to be a major problem: They make it, spend it and save it—all without ever falling off track. But guess what? Those people are few and far between.
The reality is that plenty of us regularly worry about money. And when it comes to reaching major financial goals—buying a home, sending kids to college or even having kids at all—things like credit card debt often stand in our way. Now does that sound more familiar? If you’re in the always-worried-about-money camp, take a deep breath and keep reading. With the help of LearnVest Planning Services certified financial planner™ Nancy Anderson, we’re tackling six of the most common financial burdens—and how you can work to overcome them.
Burden #1: You Feel Like You’re Never Going to Pay Down Your Debt
How to Shed It: “The first thing you need to do to get out of debt is stop the bleeding,” says Anderson. “Many people still use credit cards and still try to take out loans.” Anderson’s advice: For a couple of months, stop using your cards as much as possible, and start paying the minimums on them. Regularly paying the minimums will help you to grasp the idea of living on what you’re making, she explains, adding that once you’re able to live within your means, you can then concentrate on paying off the debt on the card with the highest interest rate. When that’s paid off, work on the one with the second highest rate, and so on.
If you have any money left over after paying the minimums, Anderson suggests building an emergency fund. While you may be inclined to pay down your debt faster, if you don’t have an adequate emergency fund, you could be tempted to rely on credit cards again to cover any unforeseen expenses.
Burden #2: You Feel Out of Control When It Comes to Your Spending
How to Shed It: To build better awareness of your spending tendencies, Anderson recommends adopting a daily “Money Minute,” in which you take 60 seconds to see how much you’re spending—and how much you have left. This daily check-in will help you to stay accountable in relation to your monthly budget.
The next step is to figure out your spending triggers—and put measures in place to thwart them. “Plan for the spiral,” Anderson says. “If you know that your inner child loves to shop, set up a special splurge ‘shopping’ account that’s linked to its own debit card.” Once that money is gone, your shopping is done until next month.
Burden #3: You’re Worried About Paying for College
How to Shed It: If you haven’t planned ahead with a college savings account—or if that account won’t suffice—Anderson says that you can still help get your kids off to a great start by researching student loan options and scholarship opportunities. “And look for other alternatives,” suggests Anderson, “like getting them into Advanced Placement classes, so they can potentially walk into college a semester ahead.”
There are a lot of options to help pay for a child’s education, but there aren’t that many to fund your retirement.
One word of caution: Anderson strongly advises against using retirement funds to cover college costs. “As a parent, there are a lot of options to help pay for a child’s education, but there aren’t that many to fund your retirement,” she says. “That’s why you have to put your basic security first.”
Burden #4: You’re Not on Track for Retirement
How to Shed It: Worried that you haven’t squirreled away enough for those golden years? Luckily, there is always something that you can do to get back on track, like making sure that you’re getting the full company match for your 401(k), as well as getting creative about bonus sources of income.
“Look at the things you’re doing in your life now, and figure out how to get paid for them,” says Anderson. “For instance, I have a client, a business consultant, who loves yoga. She makes $100 working at her yoga studio four hours a week, and gets free classes for the month worth $300.” That client, Anderson says, then takes the extra cash and invests it for retirement.
Another strategy, suggests Anderson, is to reduce overhead costs, like living expenses. If you can downsize your home—or rent out a room—you can start saving more aggressively for retirement.
Burden #5: Your Credit Score Is Abysmal
How to Shed It: First things first: Go to AnnualCreditReport.com, where you can get your credit report for free from the three major credit bureaus. “Look for errors that may be dragging down your credit score,” says Anderson. “There may be something that doesn’t belong to you or something that’s been settled and should be removed.” If your credit report is free of errors, then the best way to improve your score is to keep making payments on time and avoid using more than 30% of the credit available to you (known as your credit utilization rate). “So, if you have $3,000 in credit available, don’t use more than $1,000,” explains Anderson. Last tip? If you want to close a credit card to streamline your accounts, make sure that you don’t shutter your oldest card—the length of your credit history is one of the most important factors affecting your score.
Burden #6: You’re Worried About Aging Parents
How to Shed It: “You have to get the conversation about money going as soon as possible because you need to understand the state of your parents’ finances,” says Anderson. So if mom and dad aren’t on track for retirement, you’ll want to make sure that they start saving more—and possibly see a financial adviser.
Anderson also suggests getting their powers of attorney in order, which will enable you to make important medical choices if they’re incapacitated. You’ll also want to review long-term care insurance options with your parents. “Employers sometimes have group plans that extend to employees’ parents,” says Anderson. “Paying for long-term care out of pocket could really devastate a family financially.”
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