If your New Years’ resolutions are to save more, spend less, and get out of credit card debt, you’re in luck. I had the chance to discuss how to make small, yet important fiscal changes this year with Daniel Bowen, founder of youngandfrugal.com. Y&F; is a popular blog for young professionals that provides resources and advice on topics such as saving money, getting a job and how to spend less than $40 on date night. Read on for Bowen’s tips on how to set yourself up for financial success in 2012.
Q: Considering many of us are paying off student loans and getting through hard times with the help of credit cards, what do you think is the best way to climb out of debt?
A: One step at a time. Debt doesn’t just show up overnight and it doesn’t go away overnight either. It takes time and determination but it’s extremely doable. The first step is to stop your debt from getting worse. Figure out a way to budget your money so that you do not have to use your credit cards, and build a small emergency fund so that if something does happen you don’t have to go back to credit cards. Once you have built an emergency fund of about $1,000 start eliminating your debt.
I am a proponent of the “Debt Snowball” as championed by Dave Ramsey. In a nutshell, start with your smallest debt and throw any additional resources (after paying your minimum payments on your other debts) at paying it off. When that debt is paid off move to your next smallest until you are throwing all of your resources at paying off your biggest debt! Think of it as a game. Paying off your smaller debts are the easy levels that everyone can beat, but the levels progressively get harder as the debt gets bigger…beat the game. Q: Many people start the new year off with a plan to stick to a budget, do you have any advice on how to adhere to a tight one, but still have fun?
A: Technology makes budgeting easier than it has ever been, but the two most important things are to make your budget realistic and as automated as possible. If it isn’t realistic you won’t stick to it, and automation makes everything easier. Look back over your last few months of spending and get a real sampling of where you spend your money and how much you want to save. The best tool available for this is Mint.com, a site that will analyze all of your spending and let you know where you spend your money. From there you can set budgets within Mint. As you get close to spending your allotted amounts Mint will send you a quick reminder that you are close to being at your monthly/weekly budget. It’s a great tool and I highly recommend it for those looking for an easy and effective way to budget. Q: Hypothetical situation: You hit a financial road bump and you’re considering dipping into your savings. Is this ever okay?
A: Absolutely, unexpected expenses happen all the time, but just because it is unexpected, that doesn’t mean you should be unprepared. It’s important to begin an emergency fund, even before paying off debt because you never know what is around the corner. I will say that my emergency fund is constantly in a state of flux because I’d rather pay cash for unexpected expenses (car repair, dog ate a Christmas ornament, job loss, etc.) than go into debt over them. Having this cushion allows you to weather the storm without digging a hole. Q: Other than feeding a savings account and living frugally, do you have less common advice for people who are trying to save money this year?
A: Most people focus on cutting expenses, which is good, but one way to have a much more drastic impact on your ability to save is to boost your income. Start a business, pick up a side job, sell the stuff you don’t use, and/or focus on being the best possible employee to position yourself for a raise or promotion. These methods are usually overlooked because they take more time, thought, and drive than just bringing your lunch to work, eliminating Starbucks, or cutting cable (which are all good cuts to make). If you really want to boost your savings account then stop thinking about what you can’t do, and start thinking about what you could be doing to make more money!
