This was originally published on Monday, December 12 ,2016 in the Pacific Daily News. Click here to subscribe to the PDN.
Many of us are guilty of one or more financial habits that can be improved. The start of a new year is the perfect time to contemplate of your financial goals and revise how you spend and live.
Not having a spending plan. I once read a quote that stated: “A goal without a plan is just a wish.” Many people feel that having a spending plan isn’t necessary. We all have life goals and most of the time these goals require that our finances be in order. Whether it is going on vacation, back to school or buying a house, a plan is necessary.
Without a spending plan, you cannot prioritize your financial decisions or be aware of where your money is going. A plan needs to be in writing and often referenced to ensure that you are in line with your plan. Not having a personal spending plan can delay your life goals and create a financial peril.
Sit down and take the time to create a spending plan. There are many resources online that can assist you in creating one. Once you have one in place, there are many great apps for your phone that can make staying on track easier.
Living paycheck-to-paycheck. According to an article on investopedia.com, in January 2016 the average U.S. household saving was 6.20 percent. Other comparable countries during the same time period such as Germany, France and Italy saved around 10 percent. Of course there are some differences between the countries, but it shows that living with a high standard of living does not necessarily mean living with large financial debt.
Regrettably, many people are in a perilous position, where one missed paycheck can cause some serious financial repercussions. Put away some money into a savings account each month. If you make $3,000 a month, try to put away at least 10 percent, or $300. If that is not possible, even 1 percent of your monthly income that goes into a savings account is better than nothing. Make a conscious effort in 2017 to put aside a set percentage of your paycheck into a savings account.
Not taking advantage of your employer’s match. Everyone wants free money, so why not take it? According to money.usnews.com “an estimated $24 billion dollars in unclaimed 401(k) match funds are left unused in the United States every year.” That is a lot of lost opportunities to double investment dollars.
If your employer offers a match on your 401(k), take advantage of it and contribute at least up to the match percentage. If you can afford to take the full match, do so. It is one of the least expensive and fastest ways to increase your retirement fund.
Good debt vs bad debt. Good debt has been defined as borrowing money to purchase items of value, such as house, or fund a college degree that will improve your future earnings. Bad debt has been defined as using borrowed money to pay for items that are consumed quickly such as clothing or a vacation.
Many will say that it is OK to have good debt, but the truth is debt is debt. You still owe money to someone else. The difference between the two is that bad debt can destroy your financial health much quicker.
Avoid debt as much as possible. The faster you are debt free, the better.
Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at email@example.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.