New Year’s resolutions are easily broken, especially those related to saving money.
But 2022 will be a good time to take your finances seriously, as the year will bring new and costly challenges to your budget. Starting January 1, most Versant Power and Central Maine Power customers will see their electricity bills increase by 30%. The prices of heating fuels will increase by 30 to 60%. And grocery lists will cost more to fill as inflation sets in and supply chain delays persist.
Maine’s financial experts offer the following tips on how to pay off debt, save money, and invest by taking small steps to improve your financial health and stay engaged in the New Year.
Create a budget. Examine your checkbook or bank statement to see how you are spending the money. It’s a big financial exercise that a lot of people don’t do, but can instill financial discipline, said Peter Neelon, financial advisor at Edward Jones in Windham.
“By just looking at your checkbook for 20 to 30 minutes, you can figure out where your money is going, then figure out how much take-home pay you are and see what the differences are,” he said. This will show if there is extra money to put in savings, retirement, or other goals.
Writing down everything you spend is a more detailed step that can help identify where the money is that could be used to pay off debt or save for a major household appliance, said Lucie Estabrook, CEO of Birchbank, an agency. bangor financial planning.
Save even a little. Many Mainers have been hit hard by the pandemic and are living month to month, but trying to save even a little is important as it just adds up over time. Even a few dollars a week snowballs into real savings, Estabrook said.
If you have an employer that offers a 401 (k) pension plan, invest in it. Money contributed to the plan lowers your taxes. And you get free money if the employer provides matching funds.
Putting a small amount in a savings account each week can also make a difference. A person saving $ 4 per weekly paycheck would save about $ 200 per year at an interest rate of 1.5%, which would work out to $ 5,000 over 20 years, said Susan Veligor, director of Cornerstone Financial Planning in Portland.
“It’s only $ 5,000, but it’s $ 5,000 that you didn’t have before,” she said. Once the first $ 1,000 is saved, it can be invested in the stock market, where the percentage of growth can be much higher.
She recommends taking books on budgeting out of the library to learn about savings options. Local adult education centers and community colleges also have classes that can help with financial literacy.
Cut the fat. Taking a careful look at discretionary spending and deciding how much is really needed can identify money that might be better spent on something else.
The $ 180 cable bill can probably be lowered, Neelon said. And if you’re a safe driver and haven’t had a car accident, you might want to purchase a cheaper insurance policy with a $ 1,000 deductible rather than $ 100, he said. he declares.
You can save a lot of money by simply dropping the $ 5 a day coffee or repeating fast food chain visits that add up over a year.
It’s the small amounts saved here and there that can help improve your financial health, he said.
Create a debt repayment strategy. Paying off credit card debt is essential to financial well-being. Some experts recommend paying extra on the card with the highest interest rate first and only the minimum on other credit cards you might have. Once that high interest rate card is paid off, do the same with the next highest interest rate card. And make sure you don’t run into more credit card debt again, Estabrook said.
Also, look for cards with a lower or maybe zero interest rate for a period of time and transfer your high interest rate card balance.
Another strategy would be to get a low rate debt consolidation loan. A home equity loan might be an option, but unlike credit cards, you can lose your home if you don’t pay off the loan, Neelon warned.
Those with high mortgage interest rates on their homes should soon refinance at a lower rate. The Federal Reserve plans to raise interest rates up to three times in 2022, and banks are expected to raise mortgage rates alongside those hikes.
Plan for the future. Saving six to nine months of salary is a goal often cited by financial planners, but not everyone can achieve it. Setting aside even $ 1,000 is a good start for emergencies, like buying a new washer.
“Make sure you have an emergency fund and replenish it if you need to use it so you don’t have to resort to a credit card or a loan,” Estabrook said. “You just have to take one step to start saving. ”