Blog

Building Money Mindfulness

Building Money Mindfulness

Building Money Mindfulness

There are practical steps you can take to strengthen your financial health.

With a new year just underway, it’s the perfect time to take steps to shore up your financial stability. There are a few key areas that will go a long way to strengthening your finances: reducing debt, creating (or building up) an emergency fund, protecting your savings when your income takes a hit, and creating a budget. 

Reduce debt  For most Americans, debt is essential, accounting for a great majority of all home (88%) and vehicle (85.4%) purchases. At the same time, ensuring that you have sufficient income to pay down your debt is essential for avoiding a mounting debt burden.  

An important way to reduce debt is to reign in your credit card purchases, which can accumulate finance charges each month if you fail to pay the balance in full.

If your income is insufficient to pay off your credit card balance in full, shop around for a card with the most favorable interest rate. You have the potential to receive a lower interest rate on a credit card if your credit score is strong. To improve your rating, pay your bills on time and reduce your reliance on credit cards.

Create an Emergency Fund Creating an emergency fund is an important way to handle unexpected expenses, such as a medical emergency, major car repair, or an appliance replacement. Ideally, you want to keep three to six months’ worth of living expenses in the fund. Without such a backup source of payment, you may incur credit card debit.
If you tap your emergency fund during a downturn in the job market or by incurring unexpected expenses, create a budget to build it back up.   If your income rises, consider creating a bigger emergency fund that covers more than six months’ worth of expenses.   

Protect Your Savings When You Lose Your Job

Losing your job creates a nearly immediate shock to your cash flow, and it could prompt you to make unsound financial decisions, such as piling up debt on a credit card. Resist the temptation and instead look for ways to replace your lost income, such as by filing for unemployment benefits. The benefits have the potential to address some of your basic expenses and prevent you from taking out your credit card.

Additionally, scour your budget and try to find expenses that you can trim or even eliminate. Discretionary spending items like eating out and leisure travel are easy to cut; so, too, are those premium cable channels and $8 pints of name brand ice cream.

Don’t be afraid to withdraw money from your emergency fund, this is the occasion that you dreaded but planned for.

Avoid taking money out of your 401(k) or other retirement account, as it may make your retirement savings goal difficult to achieve.

Budget by the Numbers: 50/30/20                                                                                                                                                                      Developing a budget is a practical way to manage your finances and achieve a positive cash flow. One popular and easy rule to follow is to allocate your after-tax income on a 50/30/20 basis: 50 percent on your needs, 30 percent on your wants, and 20 percent to savings.

Your needs include goods and services that you cannot live without, like mortgage payments, groceries, insurance, and  healthcare. As an example, a car payment is a need; HBO Max is not.

Your wants are comprised of discretionary items, like eating at restaurants, leisure travel, and that premium Internet package or luxury car (choose instead middle-of-the-road broadband and a more economical vehicle).

If possible, putting away 20 percent of your net income to savings has the potential to help you save for retirement and establish an emergency fund, the latter to be used if you incur an unexpected expense or loss of income.

Building money mindfulness helps you take better control of your income and expenses and is an important step to achieving your financial goals.

 

Thanks for checking out the blog. 

Gregory Armstrong, CFP®

 


This material is for general information only and is not intended to provide specific advice or recommendations for any
individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive
outcomes. Investing involves risks including possible loss of principal.
This material was prepared by LPL Financial.   Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and
broker-dealer (member FINRA/SIPC). 
Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL Financial affiliate, please note LPL Financial makes no representation with respect to such entity.

 

Share This Article

Facebook
Twitter
LinkedIn

You May Also Like

Funding a Buy-Sell Agreement with Life Insurance

As a partner or co-owner (private shareholder) of a business, you’ve spent years building a valuable financial interest in your company. You may have considered setting up a buy-sell agreement to ensure your surviving family a smooth sale of your business interest and are looking into funding methods. One of the first methods you should consider is life insurance.

Read More »

Transferring Your Family Business

As a business owner, you’re going to have to decide when will be the right time to step out of the family business and how you’ll do it. There are many estate planning tools you can use to transfer your business. Selecting the right one will depend on whether you plan to retire from the business or keep it until you die.

Read More »

Retirement Plans for Small Businesses

As a business owner, you should carefully consider the advantages of establishing an employer-sponsored retirement plan. Generally, you’re allowed certain tax benefits for establishing an employer-sponsored retirement plan, including a series of potential tax credits for establishing the plan and a deduction for contributions you make.

Read More »

Creating an Investment Portfolio

You’ve identified your goals and done some basic research. You understand the difference between a stock and a bond. But how do you actually go about creating an investment portfolio? What specific investments are right for you? What resources are out there to help you with investment decisions? Do you need a financial professional to help you get started?

Read More »

A/D Juicebox Ready, Set, Spring! (April 10th)

W​​​​​​​e are happy to present our A/D JuiceBox Webinar Series. JuiceBox will provide current events, financial planning strategies, taxes, investments, and general business updates.

Join us as Autumn fills the air, and the time is quiet and mellow to discuss things in the financial planning world.

Read More »

Understanding Risk

Every investment carries some degree of risk, including the possible loss of principal, and there can be no guarantee that any investment strategy will be successful. That’s why it makes sense to understand the kinds of risk as well as the extent of risk that you choose to take, and to learn ways to manage it.

Read More »

Don't Miss Anything

Stay up to date with our monthly newsletter.