If one of your resolutions for 2023 is to become financially stable, you’re not alone. In a recent survey, 55% of respondents answered that they are aiming to repair their financial status in the new year.
For millennials and Gen Zers in Maryland, achieving financial stability can be an uphill battle. Although our state is home to vast educational and career opportunities, the cost of living is high. As a result, it can be hard to find your financial footing on an entry level budget. To help you get started, we’ve outlined five foundations of personal finance that you can follow to ensure that your resolutions stick in 2023.
1. Organize your finances
The first step to building a strong financial foundation is understanding your cash flow. Start by identifying all of your earnings (e.g., salary, interest, and rental income) and expenses (e.g., mortgage payments, food, clothing, etc.).
Next, review your debts. Make sure to track the amount you owe and interest rates to determine which debt you should tackle first. Then, set up automatic payments to ensure that you don’t miss deadlines and pay your debts off sooner. While you’re at it, treat your savings account like a monthly payment by setting up automatic deposits. You’ll be surprised how quickly your savings grows.
This process can seem overwhelming, especially if you have a lot of debt. Consider scheduling a financial wellness checkup with SECU! We’re currently offering new members free financial wellness consultations, available either in-person or virtually. In this 30 minute checkup, we’ll help you with all things financial wellness, including basic budgeting, new purchases and financing, lending opportunities, debt management, and more.
2. Protect your financial stability
Once you have a good understanding of your current financial standing, you can start taking steps toward protecting your financial stability. One of the best ways to do this is by building an emergency fund. Having extra funds available for emergencies is essential to your overall financial well-being. The most common recommendation is to have enough saved to cover three to six months of expenses, so start with small, regular contributions and then work your way up. Set up a separate account just for your emergency fund and have your chosen contribution amount deposited automatically each month.
Another way to protect your financial stability is to protect your investments — like your home and car — with insurance. Damage to your home or vehicle can be devastatingly expensive without coverage. You might even want to consider additional coverages like life insurance and long-term disability if they align with your needs.
3. Eliminate “bad debts”
There is certainly an argument to be made that no debt is good debt. But borrowing money and taking on debt is the only way many people can afford to make big purchases like a home. The main difference between good and bad debt is that good debt has the potential to increase your net worth or enhance your life in an important way. On the other hand, bad debt involves borrowing money to purchase rapidly depreciating assets or only for the purpose of consumption.
Therefore, it’s key to craft a plan to repay your “bad” debts. To save money in the long-term, prioritize debts with the highest interest rates. Other strategies to repay debt faster include personal loans and balance transfers.
4. Set your financial goals
By this step, you should be in a good spot to start thinking about your financial goals. Consider your priorities; are you looking to become debt free, grow an emergency fund, or start investing for retirement? By ranking your goals, you can make a plan for what to tackle first.
If you’re thinking about buying a house in the new year, SECU can provide you with resources that cover every aspect of the home-buying process. From preparing your credit and finances, to selecting a real estate agent, to a surprise-free closing, we’ve got you covered.
5. Put your plan into action
The final step towards financial freedom is to put your plan into action! This includes setting your budget and reevaluating as necessary, keeping track of your goals and progress, and setting up your automatic payments and deposits.
If you’d like some guidance on your financial wellness journey, schedule an appointment with a SECU financial advisor. We can’t wait to help you reach your financial goals.