When it comes to our finances, many of us focus on what we could be doing better: saving more, spending less and so on. We tend to forget about the good habits we’ve picked up along the way and the positive portfolio progress we’ve already made.
So, in the spirit of ending the year on an upbeat note, we’re highlighting the often-overlooked money wins that can really make the difference between financial fitness and a busted budget. Read on for all the reasons you deserve a huge pat on the back—and learn how you can continue to stay ahead of the game in the year ahead.
Win #1: Paying Off Your Credit Cards Each Month
According to a Nerdwallet study, the average U.S. household with credit card debt has racked up a balance of $16,060, and consumers pay about $1,292 per year in interest. What’s more, that figure could increase to $1,309 given the Federal Reserve’s recent decision to increase the benchmark interest rate.
And as Bloomberg reports, the majority of credit card users ages 25 to 50 are “revolving” users, meaning they carry debt forward from month to month.
So, if you’re not carrying a balance on your plastic, and you’re paying off your purchases in full each month, you’re better off than the many Americans who battle sky-high interest rates and can’t seem to achieve a zero balance, despite their best efforts.
Keep it up: For starters, make sure that in an effort to stay balance-free, you’re not overextending yourself in a “pay-spend-pay” cycle, says Alexi Gilmore, CFP®, of LearnVest Planning Services. This happens when you throw so much money toward credit card debt that you end up eating into other parts of your budget, leaving you with no choice but to ring up your credit card again to cover those expenses—thus starting the cycle all over.
Even if that doesn’t sound like your situation, you might still be unsure about how to manage your credit card spending in a way that ensures you’re not going over budget. If you use a credit card for all your everyday spending, like daily lunches and drugstore runs, keep tabs on what you charge to ensure the total amount doesn’t exceed your monthly take-home pay minus what you’ve committed to fixed costs, non-monthly expenses and financial goals, Gilmore says. This helps ensure that you’re able to pay up in full come bill time while still funding your goals and non-negotiable expenses.
Another strategy is to put your recurring, fixed expenses, like your gym membership or Netflix subscription, on a credit card and pay the total amount off each month to help build up a healthy credit score. Then use cash or debit for the everyday, flexible expenses according to your one-number budget. In either scenario, you’ll earn rewards points with less worry about overspending.
Win #2: Having an Emergency Fund
Keeping a small amount set aside for those just-in-case scenarios is a proactive step toward financial wellness that deserves a round of applause. “Even if you only have $500 to $1,000 saved, that really puts you ahead of the game because emergencies do happen—cars need repair, roofs start leaking,” says LearnVest planner Matt Shapiro, CFP®.
While a few hundred bucks stashed away may not seem like much, most Americans aren’t equipped to pay for the unexpected, according to recent Federal Reserve data. Less than 50% of people surveyed said they could cover an emergency expense costing $400. Even fewer people (39%) could cover three months of expenses in the event of a more substantial crisis.
Not having a rainy day fund could mean scrambling to find another way to absorb emergency costs, like taking out a loan or line of credit or pulling money out of savings for another goal. Not only do you risk straining your budget, but you might dampen your motivation to sacrifice for those goals, Gilmore says.
Keep it up: Anything set aside is a step in the right direction, but ideally Gilmore suggests socking away three to nine months of take-home pay, a goal that will take both time and dedication. A shortcut to getting there? Consider allocating a percentage of your holiday bonus or raise toward your rainy day fund.
Win #3: Contributing to Your Retirement
Kudos to you for preparing for your post-work life. According to a GoBankingRates survey, one-third of Americans have nothing saved for retirement and 23% have less than $10,000. (The average American couple, by one calculation from the Economic Policy Institute, had only $5,000 in joint retirement savings.)
If you started contributing young, you get extra brownie points. “It can be really discouraging in the first few years when you only have $7,000 in the account and your goal is $1,000,000,” Shapiro says. “But even if you can only contribute 1%, you’re better off than not contributing at all.” Slow and steady certainly wins this race, and the earlier you begin building up your retirement account, the better.
Keep it up: “Setting up automatic retirement increases for 1% to 2% annually with your employer is a great way to increase savings automatically,” Gilmore says. “It often goes unnoticed on the paycheck side since it’s a few dollars each pay cycle, but it allows the individual to boost savings, compound growth potential and keep pace with inflation.”
Doing this keeps your overall balance from creeping up without forcing you to uncomfortably pinch pennies in your daily life. If you’re self-employed, providers like Vanguard allow you to set up automatic increases for a Roth or traditional IRA account.
Win #4: Putting Your Savings First
A 2015 GoBankingRates survey reported that 62% of Americans have less than $1,000 in their savings accounts—and 21% don’t even have savings accounts. So if you’re saving any money consistently, take a bow.
When it comes to saving, Shapiro says that simply getting into the habit of stashing away a portion of your paycheck is the important part, regardless of the actual dollar amount.
Gilmore explains that this win is more about having the right mindset than it is about the bottom line. “Committing a certain amount to goals monthly, whether it’s an amount identified by a personalized plan or an amount broken out from a pen and paper budget, is a great way to balance short- and long-term goals with day-to-day spending,” she says.
Keep it up: Break down your savings goals into manageable bites, which makes it less painful to accomplish them. Shapiro suggests getting your goals down on paper—a good habit to follow in order to hold yourself accountable. Then map out what steps you need to take in order to accomplish it and tackle each one in turn.
Sometimes the first move is an obvious one—yet easily overlooked. “Let’s say your goal is to save $1,000 for 2017, for whatever reason. But actually opening the account and having a place for the money to go is strangely a very big first step, especially for those who have struggled with saving in the past,” Shapiro explains. After all, if you never open the account, you’re doomed from the start.
Win #5: Making Timely Student Loan Payments
People who pay their school loans on time typically think of them like any other bill, Shapiro says—it’s just something that gets taken care of each month. This mindset may sound mundane, but it deserves praise. According to the Education Department, more than 40% of student loan borrowers are behind or not currently making payments, and one in six borrowers are in default, meaning that they haven’t made a payment in at least a year.
Paying back your education costs is important for your financial future because it determines your borrowing power. “[Making on-time payments] helps your credit score and lowers your debt ratio down the road if you want to buy a house or get a car loan,” Shapiro explains. Missed payments today can come back to haunt you tomorrow—so if you’re religiously chipping away at your balance, you’re making a smart money move.
Keep it up: Shapiro suggests automating your student loan payments to maintain the good habit of paying them—especially since doing so comes with an added perk. “A lot of loan servicers will give you an interest rate reduction if you sign up for automatic payments,” he notes.
He also suggests devoting 10 minutes at the beginning of every month to stay on top of your bills, noting what you owe and to whom, along with what you get paid and when. Knowing upfront where you should be by the end of each month will help you stay on track, and the regular check-in lets you visualize your progress as you go.
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.