This is a post from Pauline of InvestmentZen.com
Summer is just a few months away, and as bikini diets are on the covers of so many magazines, I thought I’d cover little things you can do to get your financial fitness back on as well. The new energy brought by spring is a great time to get your financial house in order and prepare for a great summer. Ready?
Have a financial audit
Are you paying too much for things like cable, cell phone, utilities, broadband, the gym, etc? go over your expenses and try to get rid of the ones that you are not getting value out of. I used to have a subscription to NatGeo that I loved. And then I started traveling a lot for work, was never home, and before I knew it, a year worth of magazines was piling up in my living room. Sometimes it takes a while to realize you don’t need this or that. Going a month without (alcohol, meat, magazines, Starbucks,…) can be a great way to see if you miss the habit, or if it is just a mindless way to pass the time.
Use all the cash you save for your summer goals, debt payoff or holiday savings.
Know where you stand with your debt
Before anything, you need to know how much you owe exactly, so you can make a plan to kill your debt. Let’s be realistic for a moment though. If you have a ton of debt, just like if you are 100lbs overweight, it is unlikely you will be debt free by summer. You can however build some solid habits that can set you on the right track towards debt freedom.
Let’s list all your debts, and everything you owe.
- Credit cards
- Personal loans
- Student loans
- Car loans
- Loans from family and friends
Bargain and refinance
Once you have done that, let’s look for ways to lower your interest rate on your debt. Transfer your balance to a 0% credit card. Call your providers, and ask them nicely to give you a better rate. Yes, it works. If it doesn’t, take your business elsewhere.
A quick online search will tell you whether refinancing your student loans or your mortgage is worth it. Often, people focus on little ways to save $5 here and there. But by refinancing a mortgage that has 20 years left, even if the rate is half a point or one point lower, you can save thousands of dollars! It can be a bit overwhelming, doing all the back and forth with the bank, but seriously, when will you save that much money for a few hours of your time?
Start aggressive debt payoff
Spring is tax refund time! The average amount is around $2,800, which would make a nice dent to your debt and be sufficient motivation to keep going. Aggressive debt payoff means every little bit of spare cash is going to be used to reduce your debt principal. Minimum payments should be paid automatically every month, and then every time you have a little extra money, make an extra payment. Start with the debt that carries the highest interest. You wouldn’t believe how small amounts add up and can shave months off your payments.
If you want to enjoy your summer, you should start hustling right now, so you don’t have to pick up an extra shift when everyone is on holiday. The end of the school year means some kids are looking for tutors to finish strong, spring has a ton of cultural and sports events where you can sell bottled water or hot dogs, the days are nice enough to walk the neighbors’ dogs, mow their lawn, help them move,… there are many opportunities to earn extra money if you pay attention. Lady complaining she doesn’t have time? Offer to watch her kids, clean her house, do whatever she doesn’t have time to do.
Since you are already living on your normal income, 100% of your side income can go towards debt payments. Or if you are not carrying high interest debt..
Save for your holidays
A holiday can be as cheap or as expensive as you make it. If you work hard from now until summer, you’ll deserve a break, and should plan for it. What will you do, where will you go? A budget holiday can include visiting nearby towns and parks, hiking, free cultural activities, and a couple of more expensive things. There are free campsites all across the country. You can visit all the National Parks for a year for $80. If you apply for a travel reward credit card, you can earn miles and free hotel nights for the next few months.
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Invest for the future
While planning and saving for the summer holidays, or other short term goals is great, now is the time to think about the future. Open a low fee brokerage account if you don’t have one yet, and once your high interest debt is paid off, start putting the amount your used to pay on your credit card, into a variety of index funds. Investing is super simple, you don’t need to know much about the stock market. Just keep investing, stick to indexes or solid companies that pay good dividends, and forget about that money for the near future. The S&P500 has returned over 8% on average over the past 30 years. Yes, there will be ups and downs, just do your thing and keep sending a bit of cash every month. Take advantage of your company match if there is one because that is free money, max out your 401(k) and Roth IRA, your tax refund might come handy if you didn’t need it to pay off debt.