Getting out of debt, making more money and saving more money are a few of the popular financial New Year’s resolutions. Making personal finance a priority in the New Year is smart because it can help you meet other related goals such as losing weight and feeling less stressful!
Here are five tips for taking charge of your finances in the New Year, including one I consider to be the magic formula for growing a fortune:
No. 1: Tip for becoming wealthy in the New Year: Practice restraint. Before purchasing anything that costs more than $100, sleep on it. You can avoid impulse shopping by sticking to that rule. If you are married, talk to your spouse before purchasing anything more than $100. If you make more money than the average person, you can adjust the amount according to your income.
No. 2: Tip for getting and staying out of debt in the New Year: Keep a spending diary. Track your expenses and spending habits for at least a month. Writing down every penny you spend will give you a wake up call if you are wasting money. You can also better plan a budget if you know what you realistically spend.
No. 3: Tip for taking charge of your finances in the New Year: Start a Roth IRA or, if you already have one, max it out. When you are younger you can put $5,000 per year of earned income into your Roth. If you are married and not working, you are still eligible to put in $5,000 per year is your spouse is working. A Roth IRA is the best possible vehicle for retirement and shorter term savings goals since you can take the money out tax free when you are retired. And you can take out money you put in (but not the interest it earned) while you are younger.
No. 4: Tip for becoming a millionaire: Pay off your car and then take the car payment and save/invest it for your next car. I received a letter from a car dealership today offering me a deal on a new car. In the letter, they estimated (based on when I bought my car) that I still owed $4,700 on my car. I don’t owe anything. I was thinking what a relief to have a car paid off and have the money saved for the next car purchase. It’s also smart to pay off your mortgage early after buying a home you can afford.
No. 5: Tip for becoming wealthy in the New Year: Follow the magic formula for growing a fortune. Also known as the 70/30 rule of finance, the formula is about spending 70 percent of your income and saving 30 percent. If you have debt, you adjust the formula, spending 20 percent on additional payments toward debt, 10 percent for savings (including saving for an emergency account ) and 70 percent for living expenses and bills including the minimum payments.
After you commit to the 70/30 formula, don’t make excuses! Pretend as though you really don’t have more than that 70 percent throughout the month. Set up automatic investing and savings. Stick to your budget. You will feel empowered as you watch your savings and investments grow.
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