Article Your money, your future

Managing your credit and debt

Are you confidentyou’re saving enoughfor your future? No matter where you are in life, good money management skills can put you on the path toward achieving your goals. Keep reading to learn more.

Key Takeaways:

  • Review your current financial situation—the amounts you owe, how much you're saving and the balances in your accounts.
  • Build a realistic and flexible budget that reflects your current income and expenses.
  • Organize your goals into short-, intermediate, and long-term goals, then prioritize and make trade-offs when necessary.
  • Control the debt you owe, have a spending plan and watch your cash flow.

Assess your current financial situation

Before you can identify the steps to save and manage your money effectively, take stock of your personal finances. Review the amounts you owe—on student loans, car loans, mortgages, credit card debts, etc. Look at how much you’re saving and the balances in your accounts. Are you confident you’re saving enough for your future?

Make a plan and set goals

Setting goals and developing a strategy to reach those goals helps you make the most of the money you have. Here’s how to go about it.

Organize your goals into short-, intermediate and long-term goals. Short-term goals are the things you’ll need money for in the next few years, like a new car. Long-term goals are financial needs that are far in the future—retirement is an example. Intermediate goals fall somewhere in between. The key is to prioritize your goals and make trade-offs when necessary.

Starting to save and invest early makes it easier to meet financial goals. Over time, even small amounts of money can grow into a sizable nest egg.

Use the power of compounding

The sooner you start to save and invest, the more you can potentially benefit from compounding. See the example below to see how compounding works.

The power of an extra $101 - Weekly contribution

No. of years

No. of years

$10

$10

$10, plus an extra $10

$10, plus an extra $10

No. of years

5 years

$10

$3,102

$10, plus an extra $10

$6,205

No. of years

10 years

$10

$7,500

$10, plus an extra $10

$15,001

No. of years

20 years

$10

$22,573

$10, plus an extra $10

$45,147

No. of years

30 years

$10

$52,865

$10, plus an extra $10

$105,731

No. of years

40 years

$10

$113,742

$10, plus an extra $10

$227,484

Source: NPI.

Make savings automatic

Employer-sponsored retirement plans often come with built-in benefits. The amount you want to save can be taken out directly of your paycheck and deposited into your plan account. The savings and your tax advantages are automatic. Plans typically offer a range of investment choices so you can manage risk by diversifying your savings. As useful as the diversification strategy is, it is important to understand that it does not ensure a profit or protect against losses in a declining market. There are always risks associated with investing in securities.

Control your credit card debt

The benefits of paying off any credit card debt can be huge. Consider the following to help get ahead of debt:

  • Pay more than the minimum amount due
  • Pay bills on time by scheduling online bill payments
  • Pay off credit card balances with higher interest rates first

Establish a fund for unanticipated costs

It’s a good idea to have a plan in place to pay for unanticipated costs. If you have no emergency savings, it may take a while to accumulate funds. You may want to consider having enough money to cover up to a year’s worth of expenses.

Have a spending plan

You should know exactly where your money is going. Write down or use a phone app to track your expenses. Expenses typically fall into three categories:

  • Fixed expenses such as a mortgage or rent, taxes, insurance and auto and other loans.
  • Variable expenses including utility and phone bills, groceries and credit card charges.
  • Discretionary expenses such as dining out, cable TV, vacations and gym memberships. You have the most control over this category.

Know your income

Your income includes wages and bonuses from your job and other sources such as rental properties, businesses or investments. Track your income over several months to account for any variations.

Watch your cash flow

If you’re spending less than your income, your cash flow is positive. Still, you may consider looking for places to trim your spending to save more. If you’re spending more than you’re earning, you have a negative cash flow and should reduce your spending. It‘s well worth it to control your spending and increase your savings.

Build a budget

Your budget should reflect your current income and expenses. Account for your fixed expenses first and then plan for variable expenses. Also set aside money for expenses that are paid sporadically, such as taxes and insurance. Assign a category to saving for your future. Make your budget realistic and flexible. The money needed in each category may change over time. You might pay off your car loan, for example. Reviewing your budget periodically will allow you to reflect new amounts or new categories.

Put what you’ve learned to work

Now that you have a better understanding of howto manage your money, it’s time to take charge ofyour finances and put yourself in a position to achieve your goals.

1These are hypothetical examples involving participants who consistently make weekly contributions over various time periods and earn a 7% average annual investment return (compounded monthly). The illustration does not represent any specific investment product offered by your plan and does not include any investment fees and expenses. Your investment returns will differ, and it is unlikely that your contribution amount will remain the same over a long period. Pretax contributions and related plan earnings will be subject to ordinary income taxes and a possible early withdrawal penalty upon distribution. Investing involves risk, including the potential of losing money or the decline in value of the investment. Performance is not guaranteed.

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