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This post is from our regular contributor, Erin.
We talk a decent amount about establishing financial goals, and for good reason: goals are necessary to have! Without them, we wouldn’t have much motivation to improve our finances.
However, getting started can be rough. If you’re in a good financial situation right now, that probably wasn’t always the case.
Can you remember when you first started sorting through every bit of information on personal finance you could get your hands on?
I know I do – reading blogs was a large part of that. =)
However, it’s easy to get lost in all the information we find. As we hear so many times, personal finance is personal, which means everyone has their own way of doing things. Whether it’s paying off debt, saving, budgeting, or scoring deals – there are tons of ways to do each, and none are necessarily right or wrong.
The worst thing you can do is run away from all this knowledge and not make any changes. You just have to break information into tiny digestible pieces so you can work your way through it. That’s why I’m going to give you some advice on how to start small when it comes to making financial changes.
Starting Small with Saving
There are so many things we should be saving for in life, it can seem almost impossible to whittle it down into bite-sized chunks.
The first thing you should start with is an emergency fund. I’m sure you’ve all heard that before. Emergency funds are the best weapons against the uncertainty we face in life.
Emergency funds will help you out if you find yourself in a bind, and they should also prevent you from going into debt.
Most of the confusion comes from wondering how much to save. To that, I usually say whatever helps you sleep at night.
Many people will recommend at least 3 months of living expenses. If you’re self employed, you’ll want to save more. If you’re in an industry that’s crowded, or job prospects are low, go with 4-6 months.
Depending on your expenses, saving that much can be overwhelming.
What should you do? Break everything into chunks. For example, if you need to save $2,000, if you take 6 months to do it, you’ll only have to save $333 per month. That’s not nearly as daunting has saving $2,000, right?
Once you get into the habit of saving, you can always increase that amount. If you have to start lower, that’s fine, too.
I also need to mention the benefit of setting up automatic transfers from your checking to your savings account. That will make saving super easy, and it won’t overwhelm you since you won’t have to think about it.
If you need help on figuring out what else to save for, I wrote a post on how to figure out what your financial values are. Take a look at that, and your priorities will probably become much clearer!
How to Start Paying Off Debt
While I only have student loan debt to deal with, I’ve helped my parents work out a debt payoff plan.
They have about five or six different creditors they owe. It took them a while to sort it all out because it seemed so tedious at first.
Who really wants to list out all of their balances owed? Besides being tiring, it can be an emotional shock to total up all your debt.
But it’s necessary in order to pay off your debt efficiently.
If you’re overwhelmed with the process, take it one step at a time. First, commit to actually creating a list of your debt. Make columns for the name of the loan, the balance owed, the minimum payment required, the due date, and your interest rates.
The next day, come back and fill in 2-3 of your debts. Slowly build your list until it’s done.
Alternatively, there are several free services out there like Mint and ReadyForZero that will pull this information for you. You just have to connect your various accounts with them. After that, they’ll update automatically.
After you’ve gathered all the information, figure out how you want to pay off your debt. Use whatever method works best for you! The important thing is you start.
Once you become comfortable with that, you can figure out how much extra you want to pay. If you can’t start with much first, that’s fine. If making smaller payments throughout the month is easier than making one large payment, do that instead.
Eventually, you’ll get into the habit of focusing on paying it down, and you won’t have to think about it. If you have a large enough buffer in your checking account, set up automatic bill payments as well. Just check your account statements for accuracy.
Saving for Retirement a Little Bit at a Time
Retirement is one of the harder financial goals to focus on for many.
If you’re starting early, it may seem like retirement is so far away, you don’t have to worry about making contributions for a while.
However, you can’t really argue with compound interest.
Let’s look at an example. If you put $500 per month into your retirement account for 30 years, assuming an annual growth of 7%, you’ll end up with $574,376 (with an initial deposit of $1,000).
Hold up – $500 per month might seem like a lot to commit to right now, especially if you’re not making much.
Even if you invested $100 per month, you’ll still end up with $120,965 (under the same conditions). While that’s not enough to retire with, that’s still a better balance than $0!
Do the Best You Can With What You Have Now
There are a lot of financial experts who love throwing big numbers around because they sound better. But they might not be attainable for everyone, especially as a young adult just starting out in their career.
The key is to work with what you’ve got now. You’ll get further ahead by taking action now. Procrastination won’t get you anywhere.
Most people regret not getting serious about their finances sooner. When you’re young, time is on your side, and it’s best to use it wisely.
Don’t worry about making seemingly insignificant payments toward your debt or savings. They will add up. Don’t believe me?
If you have a 5 year loan totaling $5,647 with a minimum payment of $125.61 and interest rate of 12%, you’ll end up paying an extra $1,890 in interest.
By paying just $10 more per month ($135), you’ll pay $197 less in interest, plus you’ll have your loan paid off 5 months earlier. Doesn’t that sound better? Imagine what an extra $50 could do!
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Starting small is perfectly acceptable. Don’t compare your journey to others and let their progress discourage you. Focus on establishing good financial habits, and the rest will fall into place. You don’t have to get caught up in trying every tip under the sun.
Do what’s best for you and work with what you’ve got. Things will likely improve in a few years, and you’ll be glad you made the progress you did. It’ll make life much easier down the road!
Have you had to “start small” with your financial goals before? Do you think taking baby steps is beneficial?
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