4 Financial Goals You Can Reach Even If They Feel Impossible
Although much has been made about how the American economy recovered from the depths of the coronavirus pandemic and how low unemployment is, the truth is that things are still tough for many Americans. Some reports claim that only 39% of Americans could comfortably handle an unexpected $1,000 expense, which implies that other financial goals remain out of reach as well.
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While it’s hard to conjure extra income out of thin air, there are concrete steps you can take to help move you forward toward each of your financial goals, even if it means setting reduced expectations. The bottom line is that the earlier you start planning for what you want to achieve, the more likely you are to do it.
Here’s a list of some common financial goals along with specific steps you can undertake to help reach them.
Getting Out of Credit Card Debt
When it comes to common financial goals, getting out of credit card debt is right near the top of the list for most Americans — as it should be. Having credit card debt is likely the top cause of why Americans can’t reach their other financial goals. With oftentimes high double-digit interest rates, credit card debt can rapidly snowball out of control until you’re simply paying off the interest every month without reducing the actual debt. This is why it’s paramount to attack credit card debt aggressively.
Typically, two methods are cited as the best ways to pay off credit card debt: the debt snowball and the debt avalanche. With the debt snowball, you pay off your smallest credit card balance first, then tackle the next largest after that and so on. With the debt avalanche, you’ll pay off the highest-interest debt first, regardless of its size.
Both methods have pros and cons, but as long as you create a plan and stick to it, you’ll make progress against your credit card debt. To give you a head start, try to boost your savings even by an extra $50 or $100 per month and put it towards your credit card debt. You could also temporarily divert your other savings, such as your retirement plan contributions, to help prevent your credit card debt from spiraling out of control.
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Paying Off Student Debt
Paying off student debt is somewhat similar to paying credit card debt, although interest rates and payment terms are often more generous. In the current environment, however, you’ve got a friend behind you in the form of legislative action.
Student loan payments have been deferred throughout most of the coronavirus pandemic, and many loans have been forgiven. On August 24, the Biden Administration forgave as much as $20,000 in student loan debt for qualifying debtors, and there remains the potential for future cancellations.
For now, the best course of action is likely to suspend your payments as long as you can to fund other financial obligations, while keeping your eye out for additional legislative action that may reduce or even eliminate your student debt.
Buying a Home
Buying a home is likely the biggest investment you will make in your entire life. Even for those earning lots of money or being financially savvy, it takes work and planning to make that dream come true.
The biggest step for most is saving enough for a down payment. Although you can put up nearly any type of down payment on some homes, it’s best to raise 20% for a number of reasons. First, you won’t have to pay extra on your mortgage in the form of private mortgage insurance, or PMI. Next, you will immediately have equity in your house and won’t likely have to worry about being underwater. Starting a dedicated savings plan for a home — and charting out how much income you will need to realistically afford a monthly mortgage payment — is a good step toward achieving this goal.
Saving for Retirement
Saving for retirement is a lifelong endeavor, and it may very well be the most important financial goal you’ll have. Fortunately, there are many opportunities you’ll have to save for retirement, and it’s important to take advantage of them as soon as possible. If you work for a medium-to-large company, you likely have access to a 401(k) plan, which can be one of the best investments you’ll ever make. Most employers match at least a portion of employee contributions, essentially pouring free money into your account every year.
If you don’t have access to a 401(k) plan, start an IRA as early as possible and contribute as much as you can. The true key to reaching the financial goal of a retirement nest egg is to start as early as possible. If you can begin at age 20 with as little as $100 per month, at a 10% annual return you’ll have nearly $1.3 million by the time you reach age 67. If you instead wait until age 40, your $100 per month will only reach about $165,000.
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