7 Tips from a Self-Help Coach
It’s that time of year for dreaming and setting goals. As a Senior Financial Coach for Self-Help Credit Union, I know that many people are struggling now. Managing your financial life takes time and careful planning—but it is so worth doing. If you are fortunate enough to be employed, now is the time to reduce financial stress and move toward financial freedom.
Here are some of the most common financial tips I share with Self-Help members who come to me for financial coaching:
1. SAVE, SAVE AND SAVE!
Did I mention saving? This is the most important thing you can do. Save for unexpected events, like car repairs, and also for special occasions like vacations, birthdays, holidays and summer camp for your children. Self-Help has savings accounts to make this convenient. The easiest way to build up a savings habit is to set up an automatic direct deposit into an emergency savings, holiday or vacation account each pay period so you have the money when the time comes.
Make a commitment to save no less than $10 per pay period for each of life’s events. If $10 is too much right now, begin with $5 and increase the amount after a month or two. If you've already started, consider increasing how much you save. Remember, savings is a habit, not an amount.
Some of you may be wondering: But how can I save? For some ideas, see bonus tips at the end of this piece for where you can find savings -- some in unexpected places.
2. BUILD CREDIBILITY BY PAYING ON TIME.
If savings is the most important financial tip, then credit credibility is its twin sister. You build credibility when you do what you agreed to do. Lenders want to know they can trust you with a loan. They will decide whether to lend to you, how much to lend, and the cost (interest rate) based on how well you’ve managed your credit in the past. On credit cards, be sure to pay the at least the minimum payment amount, and pay more if you can. Make your payments on or before the due dates. You can use mobile banking to set up reminders and/or payments around your pay period.
3. DON’T AVOID CREDITORS.
If you’re unable to pay a bill on time, call the creditor to explain your situation and let them know when you will be able to pay. If possible, contact them before the due date. Most creditors will work with you since it’s in their best interest. This is a good practice for all kinds of loans or payments—banks and credit union loans, credit card companies, mortgages, rent, medical and utility bills.
4. BUT DO AVOID CHECK CASHERS AND OTHER HIGH-COST TRANSACTIONS.
Avoid using check cashers, payday lenders (online or otherwise), title loan companies and pawn shops. These transactions often come with a very high price and can sometimes even trap you in debt that’s hard to get out from under. Find a bank you trust—or, even better, an affordable credit union with a mission to help its members. 😊 We are here to help you with savings, checking, holiday and savings accounts.
5. BE STRATEGIC ABOUT HOW YOU PAY YOUR BILLS.
If you’re paid bi-weekly, identify which paycheck will pay each bill. Use the mid-month’s paycheck to pay rent and mortgages due the following month. You may need to change the due date of your car loan, credit cards or utilities in order to make sure your rent and mortgage is paid on or before the due dates. Most creditors will be happy to move your due date if they think you’ll pay on time. Have a savings plan for the times you receive any extra money—like months with three paychecks or income tax refunds. These are great opportunities to get caught up on bills and beef up your savings.
6. AVOID USING RETIREMENT SAVINGS.
You may be tempted to borrow or withdraw money from your retirement savings plan such as a 401K or 403b. Just remember doing so comes at a high cost. You will have to pay taxes on the money you withdraw, and if you’re under the age of 59 and a half, you may have to pay a hefty early withdrawal fee upwards of 10%. Any time you withdraw money from your retirement account, you also will reduce the amount of money your retirement account earns. Your retirement savings account should only be used for a true emergency or perhaps for purchasing a home. Save your retirement money for when you will really need it—at retirement.
7. TAKE ADVANTAGE OF EMPLOYER BENEFITS -- ESPECIALLY THE PRE-TAXED ONES.
Take advantage of all your employer benefits. If your job offers a pre-taxed account for retirement (401k or 403b), child care, parking or health expenses (Flex or Health Spending Account), be sure to use them. Ask someone in your Human Resources or Payroll department what is available. These benefits can save you a lot of money in taxes. If you pay $100 a week for child care, a pre-taxed child care plan will reduce the cost to around $88. Also, be sure to match, at a minimum, any contribution your employer makes to these accounts. Otherwise, you’re leaving money on the table.
** BONUS SAVINGS TIPS **
In these uncertain times, money is tight for many of us, and every dollar saved can help. Here are several ways to reduce your expenses or add income:
Use Free Tax Preparation
Use free tax preparation services such as VITA sites. Most income tax preparers charge $200 or more for income tax preparation. I'll have more tips related to tax preparation in my next blog post (January 20).
Trim Your Subscriptions
Look at subscriptions you’re paying for but rarely use. It's easy to forget about subscriptions like HULU, Netflix, Amazon Prime, Apple Music, Pandora or a gym when the monthly payments are deducted from your account or charged to your credit card. But these charges add up: A $19 monthly Netflix payment equals $156 a year. And think about this: a Planet Fitness basic membership is $120 annually ($10 a month). One share of Planet Fitness stock is $80.32 (as of early January 2021). If you’re not using the gym membership, you could spend less and possibly make money.
Shop for the Best Insurance Deal
Shop around for the best insurance premiums for your automobile, rental and homeowners insurance. Check with your current insurance agent to see if there are ways to reduce these costs, then use their numbers to shop with other companies. Be sure to compare apples to apples. In other words, be sure the quote you get from another agent gives you the same or more coverage for a lower cost.
Drop Storage Costs When Possible
Evaluate the costs and benefits of storage units. If you’ve been paying a storage bill for over six months, consider whether you really need the items you’re paying to store. Storage cost for items you’ve managed to live without may be an area you can save money.
Make Changes to Reduce Utility Costs
Check with your local utility companies to see if they give free energy audits or supplies that can reduce your utility cost. Duke Energy often offers free energy-saving lightbulbs that will reduce your lighting cost. Replace shower heads and toilets with low flow ones. These kind of changes can reduce your utility bills by half.
Find Money Owed to You
Check with your Secretary of State to see if you have any unclaimed money. I know this one sounds far-fetched, but many people have been pleasantly surprised to find that there was money owed to them that they didn't know about from a business or government office. Be sure to check the Secretary of State website for every state you’ve lived in.
Consider Part-Time Work for Extra Cash
Pick a part-time job or use your hobby to make money. If you like working out at a gym, see if they are hiring. Often you can get paid and use the gym for free. An old saying is that when you're doing something you love, you’ll never have to work. If you're really good at braiding hair, washing cars, tutoring students or babysitting, these may be opportunities to make a little extra cash. Check with you state to see if there any licensing requirements.
Be aware of hidden costs for jobs like driving for Uber, Lyft, DoorDash, etc. These are great ways to make money fast, but often add mileage and wear and tear on your car. When starting a driving job, it's a good idea to set up a special savings account to take care of repairs and maintenance.
This is just a start! Look for Part 2 of my New Year’s tips here managing your taxes and tax refunds—to be posted on January 20.