10 Ways to Improve Your Financial Health (Even If You Only Do One)

If you keep your finances in check, that allows for more traveling! Keep your budgets tight and debt at a bare minimum so you can reap the rewards! Living simply actually allows you to live big! Click the link to view a slideshow straight from the experts!

1. Grow your emergency fund!

 

If you don’t have an emergency fund, several of our experts said it’s a good idea to start one, even if you can just sock away a small amount every month. If you have an emergency fund, good for you — but chances are there’s not enough in it.

“I think the single most important thing someone can do right now for their financial life is to make sure they have an adequately funded emergency fund,” says Jim Wang, blogger at Bargaineering.com. In these days of still-high unemployment, the old rule of thumb about having three months’ worth of expenses no longer applies. Instead, Wang says shoot for six months at a minimum, and as much as a year if you think your job is in jeopardy.

“The key is to be able to manage emergencies from savings, rather than having to liquidate your retirement account or leaning on a high interest credit card,” Wang says. “Trying to resolve an emergency with a credit card can lead down a
dangerous path of debt.” Keep your emergency fund in a high-yield savings account separate from the account you use for everyday expenses.

 

2. Pay off credit card debt!

 

“Pay off or pay down credit card debt with any existing savings,” says Tom Gilovich, psychology professor at Cornell University, co-author of Why Smart People Make Big Money Mistakes and a TIME Moneyland contributor. With credit card APRs averaging nearly 15%, people with credit card debt pay much more in interest than they can earn by having that money invested elsewhere.

If you don’t have any savings, there’s no way to sugarcoat it: You’ll have to make some budget decisions and give some things up. But consider this: If you have a $5,000 credit card balance and an APR at the national average, and you make only the minimum payment each month, you’ll be stuck paying off that debt for 24 years. Whether or not you know where you’ll be living and what you’ll be doing in more than two decades, do you want the one certainty in your future to be credit card debt? Over that time period, you’ll pay more than $7,000 in interest, according to the Federal Reserve’s online repayment calculator.

 

3. Put 10% toward retirement

 

“Target to save and invest at least 10% of your income, no matter how little or how much you make,” says Steve Vernon, retirement-planning expert and president of Rest-of-Life Communications. The sooner you start, the more wealth you’ll be able to build, Vernon says.

Even small amounts can add up over time. If you save and invest just $5,000 a year in a tax-deferred account starting when you’re 25 and earn a 6% rate of return, that will have grown to $773,809 by the time you’re 65. Alternately, even older workers can benefit — it’s never too late to start building up your retirement nest egg, you’ll just need a more aggressive savings plan. If you sock away $15,000 a year for 15 years before you retire into a tax-deferred account that yields a 6% rate of return, you’ll still have $349,139 by the time you reach retirement.

 

4. Pay off your mortgage before you retire

 

“The term of your mortgage should not be longer than the number of years you plan to work,” says Richard Thaler, behavioral economist at the University of Chicago and co-author of Nudge: Improving Decisions About Health, Wealth, and Happiness.

After you retire, your income will probably drop, but your cost of living won’t. Some expenses, like health care, are likely to climb — perhaps significantly. If you can eliminate the burden of a monthly mortgage payment, you’ll have more flexibility to handle any rising costs.

Thaler, along with several of our other experts, point out that record-low interest rates make this a good time to refinance your mortgage if you plan to stay in your current home for several more years. “If you are 50, get a fixed-rate, 15-year mortgage, and you will have one less thing to worry about when you retire,” he says. With 15-year mortgage rates around 3%, you’ll be able to build equity faster by having more of your monthly payment go toward the principal. If you’re underwater or don’t have equity in your home, you may still be able to refinance through the Home Affordable Refinance Program if your mortgage is backed by Fannie Mae or Freddie Mac.

 

5. Track your spending!

 

“Track your spending,” says Gail Cunningham, spokeswoman at the National Foundation for Credit Counseling. “It’s a basic building block of financial success, but so many people don’t do it.”

Many diet programs encourage participants to keep a “food diary” where they write down everything they eat on a daily basis. The idea is that recording every single bite — even the rest of your kid’s mac-and-cheese or a slice of your co-worker’s birthday cake — makes you mindful of how much you’re ingesting and prevents mindless eating.

With your finances, the idea works in reverse but the principle is the same: Writing down every cent you spend over the course of a week will give you a very clear picture of exactly where your money is going.

It sounds like a basic idea, but Cunningham says it’s a step many people don’t take. A recent NFCC survey found that more than 20% of respondents don’t know how much they spend on food, housing and entertainment. “I think they’re afraid to, fearing that it will reveal areas in which they need to cut back where they don’t want to make cuts,” she says.

Read more: http://moneyland.time.com/2012/05/24/10-ways-to-improve-your-financial-health-even-if-you-only-do-one/#5-track-your-spending#ixzz1wOIaij00

Money and Finances While Traveling Abroad

In preparation for a longer post on this topic, what have other people done with finances while abroad? Do you want to see something in particular? What credit cards do you prefer? Do you open an overseas checking account for longer stays? Do you have experience with this? How about online banking? How do you prefer to get your foreign currency? Do you use traveler’s checks? Stay tuned! More to come!