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Let the Money Work for You

Estimated reading time: 4 minutes

There is a classic saying, “money doesn’t buy happiness, but it sure does help.” The great thing is you do not have to be wealthy to set yourself up for financial success. Just about anyone with the proper mindset and goals can go from feeling like they are drowning in debt to being able to breathe and feel comfortable. Whether you have piles of debt—or you just love shopping—there are plenty of ways to get on track and live happily without stressing over money.

Budgeting

As we’ve shared in previous financial literacy blogs, budgeting every month is key to staying on track and knowing where every dollar is going. Go over your last month of transactions and try to find trends in your spending. You may find you are overspending on Starbucks, or simply paying for things you don’t need. It’s easy to be biased when it comes to your spending, so having a friend or family member look over your spending with you may be a good idea. Then, establish a good base for your budget. Once the month has passed, compare your planned budget with what you spent to see how well you’ve done.

Debt

Attacking your debt head-on will be your best strategy. Ignoring it will only hurt you, and deferring it is just a temporary Band-Aid that still accrues interest. A good strategy is to look at your planned budget for the month and put any extra money you have left over toward your debt. If you have multiple loans or credit cards, then put everything extra toward the debt with the smallest balance. Once you have paid off the debt with the smallest balance, add the minimum payment you were paying on that to your next lowest balance. This will continue like a snowball effect until all debt is paid off. Combining your budget and debt strategy is key to having financial freedom.

Savings

When paying off your debt, you want that to be your top priority, but it is also important to have an emergency fund. A good safety net is $1,000 for any unexpected costs such as a flat tire, medical costs, large deductibles, etc. Once you have all your debt paid off, then start working toward building your savings account. A good base is to save around three to six months of your expenses. That way if you are out of work for a while, you will still be covered by your savings.

Investing

Once you are comfortable with how you built up your savings, it’s time to start investing in your future. For many, this may be making a down payment on a home, putting money into an IRA or 401k account, saving for their child’s college expenses, and more. Set goals and small milestones along the way to help stay motivated. If you are looking into accounts like an IRA or 401k, putting 10%–15% of your income toward retirement is a solid base.

When looking for homes you may have people telling you to put 20% down—which is great—but if that is not attainable then 10% is a great start, and some loan types allow less. Also looking into a 15-year fixed-rate mortgage could save you thousands on interest rather than choosing a 30-year fixed-rate for the lower payment.

End game

Many people like to live in the moment and enjoy life to their financial breaking point. It is possible to live for now and your future. If you keep a mindset focused on longevity and financial freedom, you will reap the benefits. Live within your means, set goals, educate yourself more on saving and investing, and just be aware that you are in control of how you live now and how you will live during retirement.

Tyler Drinkard is a Treasury Analyst at Mr. Cooper. He currently holds an undergraduate degree in Finance from Auburn University and is studying to receive his master’s in finance at Texas A&M University-Commerce.

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