The old cliché “money can’t buy happiness” is a bit of a misnomer. Shelling out for things like vacations and education can create lasting memories that leave us satisfied long after the experience is over. But of course, the memories won’t be nearly as sweet if they set you back financially. That’s why you need to take a hard look at your current finances, create a plan and save for later.
“You want to make sure there is a surplus because the surplus is going to be key to achieving certain goals,” said Arthur Flores, CFP of NYC-based Flores Wealth Planning, LLC who does financial consulting for Air National Guard in Westhampton. “Without it, you won’t be able to contribute more towards a retirement plan, or get out of credit card debt.”
Set and afford big goals without seeing red for years with Flores’ pro tips.
Goal: Get Out of Credit Card Debt
Plan: If you’re running at a deficit, Flores suggested re-evaluating, reducing expenses and creating a budget. “See what the surplus and deficit looks like at the end of the month,” Flores advised. “For a lot of people, that’s an eye opener.” Go through what you’ve spent your money on, and honestly decide what’s essential (food, mortgage) and what’s not (high data plan, HBO, eating out all the time). Flores advised cutting back at least 15 percent on non-essentials. “Call your cell phone company and see if you can get a family plan.” Cable companies will often offer you a better deal if you add a landline, even if you’re not using the phone, and instead of grabbing lunch out every day, brown bag it a few times a week. Consider temporarily getting a second part-time job. “I had a client who was an Uber cab driver and was aggressively able to pay down his debt. Without the income, he couldn’t have done that.” When it comes to using credit cards, only spend what you can pay off at the end of the month otherwise you’ll incur more interest. What not to do: ignore it. “Credit card debt doesn’t go away.”
Goal: Get an Advanced Degree
Plan: Student loan debt is considered “good debt” because it’s an investment that can create value, like a higher-paying job. That said, if you have mouths to feed and rent or a mortgage to pay, you probably don’t want to deal with the monthly payments millenials are currently making. Set an accumulation goal and save for later. “Find out how much you’re going to need and work backwards to see how much you need to save on a monthly basis,” he advised. “It has to fit your budget.” Remember to factor in things like books, supplies, parking permits and transportation and not just tuition fees when calculating your cost of attendance. Research scholarships to lighten the number of loans you need to take out, and try to keep your job if possible or find part-time work that’s related to your field.
Goal: Start a Business
Plan: Just like going back to school, starting a business is an accumulation goal; research expenses and work backwards. “You should have at least two years of expenses saved up in your nest egg,” Flores said. “The first two years are typically when you’ll be in the red when you start a business.” To keep yourself honest, Flores recommended setting up an automatic payment from your checking account to a savings account or setting up an automatic payment from your paycheck. Try to keep your day job until you’re on your feet if you can, and figure out which business expenses are essential (accounting, legal, compliance) and which you can save on. For example, instead of going all out with marketing billboards and mailers, try using social media. Now that you’ve got a head start on financials, get more tips on starting a business from local business owners and if you have dreams of going national, learn from the brewer, the baker and the business sign maker.
Goal: Buy a Home
Plan: Before buying a home, make sure you have three to six months of take home in an emergency fund, are contributing to a retirement plan and are out of credit card debt. In case you’ve been living under a rock: Long Island property taxes are high, and if that’s not enough “you have to factor in renovation costs, mortgages, the broker,” said Flores. “All that adds up.” Plan to make a 20 percent down payment. If you can’t do that, Flores advised to look smaller. Really think about your budget as you’re researching cost of living in your potential neighborhood. “You have to be comfortable with the taxes, the utilities. This is where the budget comes in: can you afford the mortgage plus the property taxes? That’s key.”
Goal: Travel For a Year
Plan: Traveling can be rewarding and eye-opening, but make sure your credit card debts are paid off before jetting off for an experience of a lifetime. “You don’t want to worry about that,” he said. Talk to people who live in or have been to the areas you are interested in going, perhaps a family who might host you, to get an idea of costs and of course the Internet can provide plenty of estimates. See if your medical plan is accepted overseas, and if not call your provider to look into short or long-term traveler’s insurance. During your trip, apps like Trail Wallet can help you track expenses.