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New Year’s Resolutions That Will Save You Money

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Let’s be honest with ourselves, most everyone creates a New Year’s resolution each year, but very few of us actually stick to those commitments. Whether it is to work out or study more, it always seems like at about the three week mark those goals start slipping away. Setting realistic and achievable goals are the most important aspects of creating a resolution and could help you stick to it for a longer period of time. Money normally grabs everyone’s attention and with that being said, here are few money-saving New Year’s resolutions that are reasonable but will require continued progression throughout the year.

  1. Become debt-free

We are going to start with the big one first – freedom from your debt. Whether or not this is a realistic goal will depend on your situation and determining your financial situation. What type of debt you hold (credit, car loan, mortgage, etc.), what are the interest rates associated with each, and your income level will all determine how quickly you will become debt free.

It is often helpful to start targeting the debt with the highest interest rate first and so on. That will commonly be your credit card debt, which could have an APR of nearly 15% – 20%. It may also be helpful to pay the smaller debts off first to build some confidence going forward. Saving a few extra dollars each month could go a long way to freeing you from this debt.

  1. Discover ways to generate a side income

Finding extra income could be a great resolution that is very much achievable. Having excess spending money at the end of each month could free you up and relieve the financial burden from your shoulders. Even an extra hundred dollars a month could be a great way to reach other goals that you have and prepare yourself for the future.

Signing up to be an Uber or Lyft driver, finding a weekend job, or becoming a tutor are a few ways you could possibly earn some extra cash.

  1. Start an emergency fund

If you want to sleep better at night, building an emergency fund might be a great way to do that. You never know what tomorrow will bring so planning for those risks ahead of time could save you from in trouble in the future. One way you could start doing this is by saving an extra $75 dollars a month and putting it aside in case of emergency. If you continue contributing to the fund each month, you will have a safety net in place for those situations that you don’t plan for.

The next time your car tire blows out, you won’t have to stress about where you will find the money to replace it. Please remember that if you have outstanding debt, you might want to deal with that before building up your emergency fund.

  1. Build a budget

Starting off the New Year with a budget can be a very easy resolution that you can complete as you watch television. No two budgets will look the same, so it is important to establish one that works for you and one that you can stick to. The hardest part about a budget is having the discipline to actually work hard to make a difference in your situation.

One way you could go about creating a budget is first estimating both your monthly income and expenses, while determining whether each expense is a need vs. want. From then, you could go into tracking your actual spending. Keep your receipts or having a journal for recording your expenditures at the end of each day are a few ways you could go about doing this. It is important to see the differences between what you think you’re spending and then what you’re actual spending. To complete your budget, you can then make the proper adjustments towards each expense and become ready to live on a budget and save money.

As the New Year approaches, tell yourself that you are going to set a resolution that sticks and one that will truly have an impact on your life. These are just a few realistic and achievable resolutions that could help you get on the right track with your finances.

Nolan Keim
Peer Counselor I
Powercat Financial Counseling
www.k-state.edu/pfc

Let’s Talk About Credit

Image result for credit cards

With the semester starting to come to a close and the holiday season right around the corner you may be seeing an increase in credit card advertising. These advertisements may be coming to you almost every week by mail, or maybe you’ve seen one or two different Samuel L Jackson commercials telling you to sign up for his credit card.  There are a lot of great long term and short term benefits from using credit, but it’s important to realize the negative costs from using credit as well.  Before using credit, make sure these advantages outweigh the disadvantages.

Advantages of Credit

Purchase Power and Ease of Purchase: Credit cards are great to have because you don’t have to carry around as much cash.  This can reduce the ease of theft.  In addition, some credit card companies offer insurance on large purchases.

Building a Credit LineBuilding credit is not only important when applying for more credit cards, it also impacts the ease of obtaining loans, rental applications, and even some jobs. Having a credit card and using it wisely (making payments on time) will help you build a good credit history.

Emergencies- While you should avoid spending outside your budget sometimes emergencies (such as your car breaking down or flood or fire) happen. Having a credit card allows you to make large purchases you may not have the immediate funds for.

Disadvantages of Credit

Blowing your Budget– Credit card companies encourage users to spend money they don’t have.  Majority of credit cards don’t make you pay off your entire balance each month, so if you only have $200 credit card companies may let you spend $500. While it seems great at the time and may seem like free money, that remaining balance of $300 accrues high interest.

High Interest Rates and Increased Debt- This is how credit card companies make their money and this is how most people in the United States get into debt (and even bankruptcy.) “Most credit cards charge you up to 10 times that amount of interest on balances. This means that if you have $100 balance that you don’t pay off, you will be charged 20-25% interest on that $100. This means that you owe almost $30 interest (plus the original $100) at the end of the year. “(Mountain State: Center for Independent Living)

Brett Zapletal – Peer Counselor II
Powercat Financial Counseling
www.k-state.edu/pfc

Debt Management

Over the last two weeks, Powercat Financial Counseling has been providing you with some useful financial tips on how to better manage your money. So far, we have discussed the importance of having financial goals and why people should integrate budgeting into their everyday lives. This time, we are going to talk about debt management as a necessary step for your overall financial success.

Borrowing money and having debt are a part of life. And, for the most part, debt is unavoidable. For many people, obtaining a quality education and purchasing your first house would be a daunting task without some kind of debt. In fact, capitalism was built on the extension of credit. Responsible borrowing to a very large extent is what drives the economy; higher spending leads to the creation of more jobs and higher incomes, which in turn is correlated with higher spending.

As you can see, debt can be our friend, but it can also get us in trouble. As of December 2014, total consumer debt in the U.S. is $11.7 trillion. (eg. mortgages, credit card debt, student loans, etc.).  Debt can be problematic when it used to buy unnecessary things we don’t really need, and especially when we don’t have enough income to cover our debt expenses. Debt requires a degree of self-control to avoid getting caught in the debt cycle that can last a lifetime if you are not careful.

Know How Much and Know Who You Owe

Start off by making a list of all of your debts. This list needs to include all of the creditors, total amount of the debt, due dates, and what your monthly payments are. One easy way to confirm the debts on your list is to get free credit report from www.annualcreditreport.com. You can select a free credit report from each of the 3 credit bureaus once a year (TransUnion, Equifax, and Experian).  Pulling free credit reports periodically will also ensure that there aren’t any unknown debt charges under your name.

When To Stay Away From Debt

Stay away from compulsive buying. Avoid financing a long term asset, such as a home or even a car, with a short term loan from your credit card company. The value of your home or your car will not benefit you when paying your monthly credit card bill. Moreover, borrowing long-term for a short term asset such as a home appliance can get you in trouble as well. If you take a 10-year loan to buy a brand new computer with extremely low monthly payments, you will still be paying long after the computer is obsolete.

Timely Payments

The crucial step is to pay all of your bills on time. Late payments make it harder to pay off your debt and you will be charged with a late fee. If you miss multiple payments in a row, your interest rate and finance charges will increase while your credit score will be negatively affected for up to 7 years. To make sure you are not missing payments, use a calendar system on your computer or smartphone. You can also set an alert several days before your payment is due or you can even have automatic payments withdrawn from your account so that you are never late on payments (but be sure to have enough in the bank to cover the payment). In case you miss a payment, don’t wait to pay outstanding charges until the next due date; rather, pay as soon as possible to avoid ‘missing payment’ reports to the credit bureaus. As a matter of fact, 35% of your credit score is determined by your ability to pay bills on time.

Pay More and Know Which Debt to Target First

Logically, your goal is to pay off all of your debts as quickly as possible. In order to speed up the debt repayment process, you can pay more than the minimum payment every month! Time value of money is a very powerful concept. Paying just the minimum payment on your credit card won’t get you very far and you will be mostly paying your interest cost while the loan balance won’t change much. For example, if you have a $1,000 credit card balance at 18% interest rate and you pay just the minimum each month (assuming minimum is 2% of your credit balance), it will take you over 7 year to pay off $1000 credit card balance and you will end up paying $1865 ($1000 balance and $865 in interest). If you have multiple loans, paying off the loan with the highest interest rate first would be your priority, while the rest of your debt would be paid in descending order in terms of interest rates. Paying off the loan or credit card with the higher interest rate would be a wise choice because you will be paying less in total interest on your debt. Some financial gurus even suggest to pay off smaller debts first which will drive your motivation to take care of any other outstanding debts you might have.

Understand Interest Rate Risk

Every time you borrow money, the bank will charge you an interest rate. In simple terms, interest is the cost of using someone else’s money. If you are a borrower, it is in your own best interest to get the lowest interest rate possible.  Every time you are borrowing, it is crucial to understand the interest rate risk associated with the borrowing and to understand the interest rate environment. There are variable interest rates and fixed interest rates. Variable interest rates will change and its movement will depend on market forces while fixed interest rates will stay put for the life of the loan. If you are borrowing at a variable interest rate right now and you are expecting interest rates to rise in the near future, the cost of your debt will rise as well. As  of right now, interest rates are at an all-time low, but this trend will most likely reverse in the near future as the Federal Reserve is looking to raise interest rates which will force the overall cost of borrowing to increase for consumers.

Don’t Forget To Save Money Along the Way

Paying off your credit card balance or your student loans is great, but if you are cutting debt at the expense of your retirement portfolio, you will end up disappointed in the future. A lot of employers are offering 401(k)s and they are willing to match a certain percentage of your salary if you are committed to contribute into your 401(k). In a sense, this is free money that you should not pass on.

Available Debt Help

If you have been struggling to pay your bills on time for a long period of time, there is help available. The first step would be to talk to your creditors and try to work out a modified payment plan that can possibly trim down your payments to a more controllable level. The second step would be to contact a debt relief company, like a credit counseling agency.  HCCI is such an agency that can help you get a debt management plan together that works for you.  They can also advise you on other options.  The other debt relief options include debt consolidation, debt settlement, and bankruptcy. These options have advantages and disadvantages so make sure to proceed very carefully.

Be on the lookout next week for more helpful tips about personal financial management during Financial Literacy Month.  If you have any questions about debt management or other financially related questions, Powercat Financial Counseling is here to help. You can make an appointment at our website: www.k-state.edu/pfc.  We provide free and confidential counseling to all K-State students.

Elvis Hodzic
Graduate Assistant
Powercat Financial Counseling
www.k-state.edu/pfc

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