Financial Tip of the Week from the Iowa Bankers Association:
With 2011 just days away, this is an ideal time to set new goals, such as becoming physically fit or getting organized. The New Year is also a great time to assess your finances, gain control and stick to a new budget or saving plan. Taking control of your personal finances will allow you to save and prepare for unexpected expenses. Follow these tips to help you get financially fit in 2011.
Consider treating yourself to a post-holiday gift of a financial organization system. Alphabetized file folders or filing systems designed specifically for organizing your financial records are available in January as people begin to prepare for tax season. While you're getting organized, consider buying a shredder to keep your personal information safe from identity theft.
Create a Budget
Track your income and expenses to see how much money you have coming in and how much you spend. If you have debt, establishing a budget will help you to pay down your debt while saving. Use computer software programs or basic budgeting worksheets to help create your budget. Include as much information as you can and then set realistic goals for cutting expenses and saving money. Continue to track your spending and review your budget regularly.
Lower Your Debt
Spending more money than you bring in can lead to financial stress. Establish a budget to pay down your existing debts – such as student loans, mortgages and credit cards. When reducing your debt, always continue to make your payments on time. Pay more than the minimum due. Generally, it is a good idea to pay off debt with the highest interest rates first.
Save for the Unexpected and Beyond
Saving is important; it ensures a comfortable future that can endure financial surprises. No matter how old you are, it's never too late to begin saving. Start by establishing an emergency fund that can be used in case of financial emergencies such as hospital bills or loss of a job. Determine how much money you are able save each month, then deposit that amount in a savings account at your local bank. Financial advisors generally suggest saving enough money to cover your living expenses for three to six months.
Another good rule of thumb is to pay yourself first. If your paychecks are automatically deposited into your bank account, ask your employer to send a specific amount to your savings account. Because the money is put into an account before you have a chance to spend it, automatic savings plans are an easy and convenient way to save. If your employer doesn't offer direct deposit, many banks allow for automatic transfers from checking to savings accounts.
Once you've established an emergency fund, plan to save at least 10 percent of your income for retirement. There are lots of ways you can choose to save money for your retirement years, but you'll want to start by contributing to your employer's retirement savings plan – especially if your employer offers to match a portion of the dollars you contribute. Taking advantage of those free dollars will help to boost your retirement savings. To learn about other savings options, you may want to talk to your local banker, an investment professional or your tax advisor.
These tips are provided by the Iowa Bankers Association (IBA), representing banks and thrifts in the state. For more information, go to www.iowabankers.com.