5 Areas of Your Budget You Should Revisit
The last year presented a host of new financial challenges, even for people with well-stocked savings accounts. For some, the questions were urgent, like how to collect unemployment. Others wondered how to make the most of their stimulus checks or whether they should refinance their homes to take advantage of lower rates.
With so much uncertainty, it’s easy to get overwhelmed. Fortunately, whether you’re in great financial shape or feeling lost, a few small changes to your finances can lead to big improvements. Here are just a few places where you could save more, earn more or invest more to take care of your future self.
1. Home Repairs and Maintenance
Being a homeowner is nice, especially when rates are low and property values are on the rise. However, the day-to-day expenses of owning a home can quickly add up. In a single year, you could end up having to replace your air conditioner, your garage door, a few windows or more.
Don’t let unexpected homeownership expenses drain your savings account. Plan ahead by setting aside money specifically for home improvements and emergencies. Make sure you have a good home warranty with coverage that can ease the burden for things like repair calls or appliance replacements.
Try to replace old equipment before it breaks to avoid potential damages or high costs from broken or inefficient systems. Make regular checks on important items, like your sprinkler system, to ensure everything still works correctly. It’s much better to fix a small problem now than pay for a larger problem later.
2. Credit Card Debts
Many American households carry credit card debt. Whether you started carrying debt during the pandemic or have carried it for years, high-interest credit card debt can be one of the biggest obstacles on the path to financial freedom.
Start by taking inventory of all your credit card debt. Make sure to include store-specific credit cards as well. Once you have a full picture of how much you owe on each card, pay as much money as possible each month toward the card with the highest interest rate. On the others, continue to make minimum payments so you don’t fall behind.
Once you pay off the card with the highest interest, start attacking the card with the second-highest interest. This strategy will ensure you pay the least amount of interest over time while avoiding late fees and other penalties. Remember, carrying a balance on your credit card never has a long-term positive effect on your credit score. Here are a few hacks to paying off debt fast.
3. Home or Rental Expenses
Mortgage rates remain low in 2021, which makes now an excellent time to refinance. However, not everyone owns a home, and not all homeowners should consider refinancing. How do you make the most financially savvy decisions for your unique living situation?
If you are renting, think about your long-term goals. That doesn’t mean your long-term goals have to include buying your own place, but you should at least be deliberate about your choice. Shop around before your lease renewal comes up to make sure you’re still getting a good deal on your current place. Create a realistic savings plan for a down payment if you want to buy a house, or if you’d rather continue renting, invest the money you aren’t putting into a house fund into the market.
Homeowners should consider refinancing when they can get a substantially lower interest rate (preferably higher than 1%) and when they plan to stay in the house long-term. Anything shorter than two years post-refinance typically isn’t worth the extra closing costs. Be careful about “no fee” refinances, as lenders may be rolling fees into the mortgage, spreading them out over time and charging more.
4. Food Budget
Knowing how to stretch a grocery budget can make a massive impact on your finances. During the last year, many people grew accustomed to using delivery services to order takeout. While these services are convenient, they can quickly make food budgets spiral out of control.
Food delivery apps make a profit by making food more expensive and by tacking on delivery fees. Drivers also need tips. Factoring in all the small additions, a $20 meal can easily reach $40 or more in total. Apps try to hide their fees until the end when you’re already invested in the meal, which makes it more difficult to say no.
Save money by planning meals ahead of time at the beginning of the week. You don’t have to prepare everything at once. Instead, try writing down what you plan to eat on which day. That way, you can still have the foods you want, but you won’t have to plan on the fly for every meal. Removing the stress of the decision in the moment can help you make smarter moves with your money.
5. Entertainment Costs
How much do you spend keeping yourself entertained? Do you feel like your entertainment is money well spent, or do you find yourself spending a lot of money on short-term pleasures at the expense of long-term savings goals?
Make a list of all the things you enjoy doing, then think about whether you’re satisfied with the money they cost. If you love singing karaoke on the weekends, see if you could have some friends over for your own karaoke parties every other week to save on the costs of going out. If you love doing something you can’t do at home, you don’t have to cut it out of your life. Plan ahead to know how much you can spend, so when you have fun, you don’t have to worry about going over budget.
Be wary of activities designed to get you to spend a little money every time you take part. Many phone games, for example, will ask you to spend $1-5 on virtual coins, gems or other currencies to continue playing. These games are designed to make users feel like “just one more” purchase will be enough to win, even if only temporarily. Some people spend thousands of dollars each month on mobile apps.
For most people, the most challenging part of maintaining good financial health isn’t making the big decisions. Instead, the smaller, less obvious choices compound to determine whether a person is saving more than they make or vice versa.
Don’t let your financial situation develop without your direction. Take control over your financial life by paying attention to the little things. Other factors, such as your career and cost of living in your area, play a major role, but you can only control so much. Make a habit of making the right decisions every day, and your finances will reflect your sound judgment.
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Last updated: June 1, 2021