The reality is that many Americans still struggle, despite much being made of how the American economy rebounded from the heights of the coronavirus pandemic and how low unemployment is.
According to some surveys, only 43% of Americans could comfortably cover an unexpected $1,000 bill, suggesting that other financial objectives are still out of reach.
Even if it means lowering your expectations, there are practical steps you can take to help you advance toward each of your financial goals, even though it’s difficult to generate additional revenue out of thin air.
The bottom line is that your chances of success increase the earlier you begin planning for your goals. To start saving and achieve your financial objectives, follow these steps:
Eliminating Credit Card Debt
For most Americans, paying off credit card debt is well near the top of the typical financial goals. This is as it should. The main obstacle preventing Americans from achieving their other financial goals is probably credit card debt.
Credit card debt can quickly get out of control due to the frequently high double-digit interest rates, to the point where you are only making interest payments each month rather than making progress on the principal. For this reason, it’s critical to approach credit card debt forcefully.
Usually, the debt snowball and the debt avalanche are recommended as the two most effective strategies for paying off credit card debt. By using the debt snowball method, you start by paying off the lowest credit card bill, go on to the next highest balance, and so forth. With the debt avalanche, irrespective of its size, you pay off the loan with the greatest interest rate first.
Both approaches have advantages and disadvantages, but if you set a strategy and follow it, you can reduce your credit card debt. Try to increase your savings even by an extra $50 or $100 each month and apply it to your credit card debt to give yourself a good start. In order to stop your credit card debt from becoming out of control, you could temporarily divert your other savings, such as retirement plan contributions.
Paying off student debt
Paying off credit card debt is fairly similar to paying off student loans, despite the fact that student loan interest rates and repayment conditions are frequently more lenient. Yet, in the current climate, you have a supporter in the form of legislative action.
For the majority of the coronavirus pandemic, student loan payments were postponed, and many debts were even cancelled. For eligible borrowers, the Biden Administration cancelled up to $20,000 in student loan debt on August 24. Further cancellations are still possible.
The best course of action for the time being is probably to put off your payments as long as you can in order to cover other bills while keeping an eye out for new legislation that might lower or even eliminate your student debt.
Buying a home
The largest investment you will probably ever make is to purchase a home. Even for individuals who make a lot of money or are financially adept, realizing that desire requires forethought and effort.
For most people, accumulating enough money for a down payment is the biggest step. Although almost any kind of down payment is acceptable on some homes, raising 20% is recommended for a number of reasons. First off, you won’t be required to pay an additional fee for private mortgage insurance, or PMI, on your loan.
Then, you won’t likely have to worry about being underwater because you would immediately have equity in your home. A good first step in achieving this goal is to start a dedicated savings plan for a home and estimate the amount of income you will need to comfortably manage a monthly mortgage payment.
Saving for retirement
Retirement planning is a lifetime endeavor and may very well be your most significant financial objective. Fortunately, you’ll have plenty of opportunities to save for retirement, so it’s critical to seize them as soon as you can.
One of the best investments you’ll ever make is a 401(k), which is probably available to you if you work for a medium-to-large corporation. The majority of businesses contribute at least in part to employee matching, essentially adding free money to your account each year.
If you don’t have access to a 401(k), open an IRA as soon as you can and make the maximum contribution. Starting as early as possible is the real secret to achieving the financial objective of a retirement nest egg.
At a 10% annual return, if you can start investing as little as $100 per month when you’re 20 years old, you’ll have nearly $1.3 million by the time you’re 67. Your $100 a month will only reach roughly $165,000 if you wait until you are 40.