While we rang in the New Year a few weeks ago, it's still January after all, and planning for a fiscally stable and secure 2017 is still in the cards. Your resolutions to call your mom more frequently and give up chocolate may have already been broken, but financial fixes are always something to resolve to commit to.
Start simply with money-related changes that will benefit you and yours with the greatest impact for the long haul. Everyone can do better with financial planning and updates to their current habits and actions, so peruse these three resolutions to see if you can make some wise updates for the year to come.
Let's make 2017 your most financial stable yet and raise a glass to a prosperous year to come!
1. Budget and Track Spending
2017 is the perfect year to better budget and manage your spending habits. Even if you are savvy when it comes to shopping and saving, without a plan to follow and a way to keep tabs on spend, you are always susceptible to mismanage your finances or overspend without realizing it until the bills pile up.
Identify the major areas for which you need to spend money, be it home needs, educational costs for the kids, grocery shopping, etc. Based on your income and how much you need to save, list out how much you can afford to spend in each of these areas per month, with consideration for other costs such as gas, dining out, clothing, medical needs, etc.
As per Wallet Hub, The best way to make a budget is to gather your bills from the past few months and make a list of all your recurring expenses. Keep track of your ensuing monthly spending to make sure you're abiding by your budget."
If you need help with creating a budget that you can follow, consider a budgeting tool to guide you through the process. U.S. News & World Report identified 7 simple and free budgeting tools to lead the path for you financial planning.
With these tools, you will be more inclined to stick to your plans and easily adjust spending as the months change with possible income changes or new spending priorities.
2. Pay Off Credit
In order to dig yourself out of a financial hole bit by bit is to resolve to pay off those lingering credit card bills. Wallet Hub recommends to, "Repay 20% of your credit card debt. That would amount to about $1,680 for the average household, requiring monthly payments of $140 with a card offering 0% on transfers for at least 12 months." If you need assistance to work out the math, consider a credit card calculator to aid you.
Investopedia suggests, "Determine how much you can realistically afford to pay off during the year. For best results, try not to charge additional purchases on those cards while you're trying to pay down what you owe. If you have high interest credit card balances, consider whether it would be more beneficial to pay off those high interest debts or to add to your savings."
That said, before delving into a payment plan, be sure your credit information is accurate. U.S News & World Report suggests checking your credit report. "If you've stopped paying attention to your financial health, commit to requesting a free credit report on annualcreditreport.com."
As per Investopedia, "Review your credit report, and take steps to repair any negative aspects. A poor credit report could adversely affect the amount you are able to save, as it could result in you paying higher interest rates on loans, which reduces your disposable income."
Once you've cleared away any disputes or concerns, plan accordingly and see how much you can increase your pay off plan month by month until you're in the clear. Hopefully by 2018 you will enjoy a debt-free lifestyle!
3. Plan for Retirement
It's never too late to start thinking about the future, and saving for retirement can begin now if you haven't given it too much thought in the past. You're not getting any younger after all!
Investopedia recommends, "If you have access to a 401(k), 403(b) or 457 plan at work, consider instructing your employer to withhold enough through salary deferrals to ensure that you reach the maximum limit each year. If you'll be 50 or older by December 31, bump that amount to account for the additional catch-up contributions you're allowed to make."
U.S. News & World Report adds, "At the least, contribute enough to secure your employer's match, which is typically between 3 and 6 percent."
Review these retirement plan terms you should know so you're up-to-date on the lingo and terminology used when it comes to planning.
With strategic and steady planning and saving, your "golden years" will be free of financial worry and burden and you can retire with money to back you up.
So what are you waiting for? 2017's only just begun and your resolutions can be made right now. Look forward to a year that's sure to be your most financially smart and secure.
When you take out a loan for a car, charge something to your credit card, or get a personal line of credit, there is going to be an interest rate that applies to your loan.
A lot of different factors go into what you will be charged, including your own personal credit score. But even those with flawless credit still see a minimum charge that they can't get around. That all goes back to the Federal Funds Rate.
One thing consumers rarely realize is that all of our banks are lending money to each other every night. Banks are legally required to maintain a certain percentage of their deposits in non-interest-bearing accounts at the Federal Reserve to ensure they have enough money to cover any withdrawals that may unexpectedly come up. However, deposits can fluctuate and it's very common for some banks to exceed the requirement on certain days while some fall short. In cases like this, banks actually lend each other money to ensure they meet the minimum balance. It's a bit hard to imagine these multibillion-dollar financial institutions needing to borrow money to tide them over for a bit, but it happens every single night at the Federal Reserve. It's also a nice deal for those with balances above the reserve balance requirement to earn a bit of money with cash that would normally just be sitting there.
The Federal Reserve
The exact interest rate the banks will charge each other is a matter of negotiation between them, but the Federal Open Market Committee (FOMC) (the arm of the Federal Reserve that sets monetary policy) meets eight times a year to set a target rate. They evaluate a multitude of economic indicators including unemployment, inflation, and consumer confidence to decide the best rate to keep the country in business. The weighted average of all interest rates across these interbank loans is the effective federal funds rate.
This rate has a huge impact on the economy overall as well as your personal finances. The federal funds rate is essentially the cheapest money available to a bank and that feeds into all of the other loans they make. Banks will add a slight upcharge to the rate set by the Fed to determine what is the lowest interest that they will announce for their most creditworthy customers, also known as the prime rate. If you have a variable interest rate loan (very common with credit cards and some student loans), it's likely that the interest rate you pay is a set percentage on top of that prime rate that your lender is paying. That's why in times of low interest rates (it was set at 0% during the Great Recession), a lot of borrowers should go for fixed interest rate loans that won't increase. However, if the federal funds rate was relatively high (it went up to 20% in the early 1980's), a variable interest rate loan may be a better decision as you would be charged less interest should the rate drop without the need to refinance.
The federal funds rate also has a major impact on your investment portfolio. The stock market reacts very strongly to any changes in interest rates from the Federal Reserve, as a lower rate makes it cheaper for companies to borrow and reinvest while a higher rate may restrict capital and slow short-term growth. If you have a significant portion of your investments in equities, a small change in the federal funds rate can have a large impact on your net worth.
Whether you're leaving a job involuntarily, departing for something new, or just want to prepare for the unknown, it is smart to understand all your options regarding your 401k.
Frugal gifting often gets a bad reputation. However, this shopping method does not make you cheap — it makes you practical. Frugal gifts often avoid waste and overspending and can be just as meaningful (if not more so) as any other present.
With the National Retail Federation predicting each consumer this holiday season to spend upwards of $1,000 on holiday gifts amidst an economic recession —this year might be the perfect time to reconsider your spending budget. We've formulated the ultimate list of frugal gift-giving ideas to get you started.