America’s New Year’s Resolution: Clean Up Personal Finances

Americans Need to Get Serious About Messy Money Management

Compared to the rest of the world, Americans have pretty substantial incomes. Yet despite our large paychecks, we’re notoriously bad at managing money. As a new year approaches, stop recycling the same goals for eating healthy and exercising. Instead, make it a point to clean up your personal finances.

5 Ways to Improve Your Personal Finances in 2020

We’re all just a few bad decisions away from falling into a financial disaster that will mark us for the rest of our lives. Likewise, most of us are just a few good choices away from getting our financial acts together and finding success.

If you want to move closer to the latter, the following suggestions should help.

  1. Set a Budget

Budgets might be boring, but they work. If you want to regain control over your finances, this is one of the first steps to take.

Thanks to budgeting apps like YNAB, EveryDollar, and Mint, creating a budget is easier than ever. Just plug in your income, set up your expenses, and play around with the numbers until you have something that you’re comfortable with.

  1. Get Rid of Personal Debt

According to Green Residential, “The average American carries something like $38,000 in personal debt. If you have lots of standing student loans, credit card debt, and other forms of debt, it’s a good idea to make debt elimination your top priority.”

When you eliminate bad debt, a few things happen. First off, it reduces your monthly expenses and frees up money to be spent on constructive expenses – like buying a house, investing, or saving for retirement. Secondly, it improves your credit score. This makes it easier to get low interest rates on good debt.

  1. Save Up Some Cash Reserves

Every financial guru has their own suggestions for how much cash you need to keep on hand. You’ll have to be the judge of whether you need three months, six months, or even a year’s worth of expenses on hand. The moral of the story is that you need something to help offset an emergency expense or temporary loss of income.

  1. Save for Retirement

There are plenty of ways to save for retirement. Some people literally stuff cash into coffee cans and place them under their beds. (Not recommended.) Other people invest in real estate. (Requires lots of capital.) But most people choose to invest in the stock market via dedicated retirement funds.

“You can put the money into a retirement account that’s offered by your employer, such as a 401(k) or 403(b) plan,” CNN Money explains. “These plans are great deals because the money will grow tax-free until you withdraw it in retirement. What’s more, you escape taxes either on the money you put into the plan or the money you withdraw from the plan, depending on whether you choose a traditional or Roth option.”

You also have the option of opening up your own standalone retirement account that’s separate from your employer. Some people do both.

  1. Teach Your Kids Financial Literacy

The fifth and final suggestion is to raise your kids up to understand how to use money. Financial literacy is at an all-time low in this country and you can do your part to give your children a leg up on their peers.

Teach your children the right terminology and vocabulary so they can make educated decisions. In particular, they need to understand the value in saving, investing, spending, and giving.

The Calm Before the Storm

Between 1854 and 2009, there were 33 business cycles. The average length of a growing economy is right around 38.7 months (or 3.2 years). The average recession lasts for 17.5 months (or 1.5 years). As of December 2019, we’ve been in expansion for roughly 125 months (or 10.4 years).

Time is ticking. Expansionary economies don’t last forever. We’re in a period of unprecedented growth and a recession is looming. Whether it’ll happen in six months or two years is hard to tell, but it will come.

Consider this the calm before the storm. If you think you’re stressed out about your finances now, consider the pressure you’ll feel when larger economic factors like low unemployment and booming markets are no longer working in your favor.

Use this time to get control of your finances so that you’re prepared for whatever comes your way – good or bad.

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