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Planning your financial future

Setting smart and realistic financial goals

Resolving to take on challenges like tackling debt, savings and retirement once and for all can serve as a turning point and help you build a more secure future.

Setting financial goals like paying off credit cards and saving for retirement might not sound fun, but they can help you build the future you want. Here are five smart ways to juggle tough financial realities, such as paying down debt, planning for retirement and saving for college.

1. Write down your budget each month

Composing a budget might seem tedious, but it's actually a great way to keep your spending in check and help yourself get out of debt. The best part is that it doesn't have to be complicated.

Many financial experts advise that when creating a budget, you should follow the 50/20/30 rule. Here's how it works:

50% — Necessities — Half of your take-home pay should be allocated toward items that you must pay to survive, such as rent or your mortgage, food, utilities and transportation.

20% — Long-term savings — Around 20% of your take-home pay should be allocated toward long-term savings, as well as extra payments on any debt you may have. It also includes retirement contributions to your 401(k) or IRA.

30% — Discretionary spending — Under the 50/20/30 rule, no more than 30% of your take-home pay should be used on items you don't need to survive, but are nice to have. This can include dining out, vacations and shopping.

In addition, some financial experts recommend that when tackling your debt with a budget, you should abide by something called the snowball budget, which requires honing in on your lowest balances first. Paying off debts — even small ones — can feel empowering and provide the confidence boost you need to keep going.

Finally, there are plenty of online budgeting tools available today. By keeping tabs on how you're allocating money, you may increase your chances of putting a stop to excess spending.

2. Pay down your debt and don't take on new debt

Sometimes, no matter how hard you work, a daunting amount of debt from student loans, credit cards and medical bills can get in the way of paying off debt completely.

One way to make sure you're putting a little toward your debt every month is to automate savings from your paycheck directly. Try tucking away smaller amounts more often — rather than larger amounts all at once — so payments don't seem so drastic.

In addition, it's helpful to set a specific goal and stick to a debt repayment plan. You might decide to pay off your high-interest credit cards first or consider consolidating student loans. Decide what's most important to you and focus on one strategy at a time.

3. Save for retirement and your child's college

It's never too early to start saving for both retirement and college.

When thinking about retirement, some financial advisors recommend making the most of tax-advantaged retirement accounts, such as an IRA or 401(k). And if your employer matches your contributions, that will add a nice little boost to your retirement savings.

In addition, annuities, which can grow tax-deferred like a 401(k), can be a useful tool for retirement planning. An annuity is a retirement planning investment vehicle that can give you a steady stream of income for a set period of time or for your lifetime.

And when it comes to college, start saving and planning early.

4. Build an emergency fund

According to a 2023 report on the Economic Well-being of U.S. Households, around 40%of Americans are so cash-strapped that they would struggle to come up with even $400 to pay for an emergency expense. Don't let this happen to you.

Building an emergency fund is crucial to protecting yourself from the unexpected. One idea: Automate your savings. There are apps available that will take a small percentage of each paycheck and put it straight into your designated emergency fund. You might also consider dropping any additional funds into this emergency fund, such as a raise or bonus.

If you aren't in debt, the rule of thumb for building an emergency fund is to try and save between six months to a year of your expenses. If that's not possible, start with a three-month goal, which is often considered the baseline.

5. Find ways to cut expenses — they add up!

You'd be surprised at how much money you can save when you quit an expensive habit - think smoking, excessive dining out, alcohol and shopping, among others. Consider putting what you've saved from quitting the habit into your regular savings account or into your emergency savings.

In addition, when you go to the grocery store or any other retail shop, don't go inside unless you have a list. Make sure you're buying only what you need (and never go to the grocery store hungry). Finally, take a look at your accounts and cancel subscriptions you don't use.

If you're looking for more ideas on how to cut expenses, especially if your emergency fund is empty, start here.


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