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Although there has been much talk about how the US economy recovered from the depths of the coronavirus pandemic and how low unemployment is, the truth is that things are still tough for many Americans. Some reports claim that only 39% of Americans could comfortably handle an unexpected $1,000 expense, meaning other financial goals remain out of reach as well.
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While it’s hard to conjure up additional income out of thin air, there are concrete steps you can take to help you move toward each of your financial goals, even if it means setting low expectations. The bottom line is that the sooner you start planning what you want to accomplish, the more likely you are to get it done.
Here is a list of some common financial goals along with specific steps you can take to help reach them.
Get out of credit card debt
When it comes to common financial goals, getting out of credit card debt is near the top of the list for most Americans, as it should be. Carrying credit card debt is probably the number one reason Americans can’t reach their other financial goals. With often high double-digit interest rates, credit card debt can quickly spiral out of control until you simply pay the interest every month without reducing the actual debt. This is why it is critical to aggressively attack credit card debt.
Two methods are typically cited as the best ways to pay off credit card debt: debt snowballing and debt avalanche. With the debt snowball, you pay off your smallest credit card balance first, then tackle the next largest, and so on. With the debt avalanche, you pay off the highest-interest debt first, regardless of its size.
Both methods have pros and cons, but as long as you create a plan and stick to it, you’ll make progress on your credit card debt. To give yourself a head start, try building up your savings with even an extra $50 or $100 a month and use it toward your credit card debt. You could also temporarily divert your other savings, like your retirement plan contributions, to help keep your credit card debt from getting out of control.
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Pay off student debt
Paying off student debt is somewhat similar to paying off credit card debt, although interest rates and repayment terms are often more generous. In the current environment, however, you have a friend behind you in the form of legislative action.
Student loan payments have been deferred during most of the coronavirus pandemic, and many loans have been forgiven. On August 24, the Biden Administration forgave up to $20,000 in student loan debt for qualifying borrowers, with the possibility of future cancellations.
For now, the best course of action is likely to be to suspend your payments for as long as possible to fund other financial obligations, while keeping an eye out for additional legislative measures that may reduce or even eliminate your student debt.
buy a house
Buying a home is probably the biggest investment you’ll ever make. Even for those who make a lot of money or are financially savvy, it takes work and planning to make that dream a reality.
The most important step for most is saving enough for a down payment. Although you can make almost any type of down payment on some homes, it’s better to go above 20% for a number of reasons. First, you won’t have to pay more for your mortgage in the form of private mortgage insurance, or PMI. You will then immediately have equity in your home and probably won’t have to worry about being underwater. Starting a dedicated savings plan for a home, and figuring out how much income you’ll need to realistically afford a monthly mortgage payment, is a good step toward achieving this goal.
retirement savings
Saving for retirement is a lifelong endeavor, and it may well be the most important financial goal you’ll ever have. Fortunately, there are many opportunities you’ll have to save for retirement, and it’s important to take advantage of them as soon as possible. If you work for a medium or large company, you likely have access to a 401(k) plan, which may be one of the best investments you’ll ever make. Most employers match at least a portion of employee contributions, essentially putting free money into your account each year.
If you don’t have access to a 401(k), start an IRA as soon as possible and contribute as much as you can. The real key to reaching your retirement savings financial goal is to start as early as possible. If you can get started at age 20 with as little as $100 a month, yielding 10% a year, you’ll have almost $1.3 million by the time you’re 67. If you wait until age 40, your $100 a month will only hit about $165,000.
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