So you’ve decided to get serious about your financial health and you want to start tackling your debt. Maybe you’re wondering, ‘which debt should I pay off first?’ Or maybe you just got your bonus or a tax return and you’re trying to figure out how to get the most bang for your buck. There are two main methods that people typically recommend when it comes to paying off their debts. I’ll explain each of them and help you decide which one is right for you.
Snowball Method
The first and most common debt payoff method is the snowball method. With this one, you continue to pay the minimum payment each month on all of your debts, throwing any extra money at the smallest dollar amount first. Once you’ve paid off your first debt, then you take whatever monthly amount you were putting toward that debt and start to pay off the next smallest amount early. For example, let’s say you have the following debts:
Debt
Remaining Balance
Interest Rate
Credit Card 1
$8,400.00
19.02%
Credit Card 2
$350.00
17.00%
Auto Loan
$2,100.00
5.27%
Student Loan
$32,731.00
5.80%
If using the snowball method, you would pay off Credit Card #2 first, followed by the second credit card, your auto loan, and student loans last. Let’s take a look at some of the pros and cons of using the snowball method.
Pros
Simple
Have some quick small wins
Feels like you’re making progress faster
Cons
You could end up spending a lot more in interest over the life of the loans
The Avalanche Method
The second popular debt payoff method is the avalanche method. With this method, you focus on paying off the debt with the highest interest rate first.
Debt
Remaining Balance
Interest Rate
Credit Card 1
$8,400.00
19.02%
Credit Card 2
$350.00
17.00%
Student Loan
$32,731.00
5.80%
Auto Loan
$2,100.00
5.27%
Pros
You’ll save money on interest
You’ll get out of debt faster
Cons
Can be discouraging if your biggest debt has the highest interest
So which debt should I pay off first?
Hopefully when you ask yourself that you now have the tools to evaluate which one’s right for you. Do you know you get discouraged quickly when paying off debts or working toward big goals? Then use the snowball method. Does saving the maximum amount of money totally energize you? Try the avalanche method.
The important thing is that you keep at it. You might start off with one method and realize that it’s not working out well for you. Rather than giving up entirely, try the other one. If you’re having a hard time deciding, try using this website to put in info on your various debts and see how the avalanche and snowball methods compare.
How to Stay Motivated to Pay off Your Debts
One really fun way to keep your goals in the forefront of your mind and stay motivated to pay off debt are these coloring sheets. I’ve also seen a lot of fun spreads you can create yourself in a bullet journal if that’s your jam. And if you’re currently using a budgeting app or website, most have built-in goal settings so you can track your goals there too. Pick whichever sounds most energizing for you, or maybe a combination of all of them! There’s seriously nothing as satisfying as watching your debt shrink week after week.
Which method sounds the best for you?
I’m curious. Which method have you or do you think you will try? I’ve always used the avalanche method because saving as much money as possible gets me fired up. But I love that all of us are so different and there are different strategies we can utilize for our own unique needs!
Looking for more info on healthy finances? Check out these posts:
Money is one of those things that stress people OUT. Did you know that it’s one of the number one causes of divorce? Whether you’re married or single, personal finances can cause some serious friction. As I write this, the stock markets are plunging and the outlook for the economy is looking bleak as people practice social distancing for COVID-19. Many people are going to be out of work for the next few weeks. Others are losing their jobs entirely. Now more than ever is a good time to review your finances and make sure you’re headed in the right direction. Most likely the question of how to get your finances under control is at the forefront of your mind.
I think one of the main reasons financial planning stresses people out is because they’re worried that they’re doing something wrong and just don’t know it. What if I told you that there are steps you can follow to get your finances under control so that, even if you haven’t made it to the last step yet, you will feel confident and expectant in your financial life? Sounds amazing, right? Sometimes just knowing where to start and how to take the next step is all you need. Today I’m sharing 11 steps you can take to get your finances under control.
As a side note, I’m sharing information I’ve gleaned from other sources and tips and tricks that have worked for me personally. I’m not a financial advisor and it’s always a good idea to talk to a professional before making important financial decisions.
11 Steps to Get Your Finances Under Control
Step 1: Start tracking your spending
The very first thing you need to do is figure out how much you’re spending and how much you’re making. It’s almost impossible to have a healthy financial life if you’re not doing this first. Thankfully there are a ton of great websites and apps that help you do just that. My favorite free budgeting website is Mint. We currently use YNAB, which we love. It’s a little pricey, but you can try it out for a month to see how you like it. If you’re a student then you can try it out for a year for free.
But even if you use a pen and paper, the important thing is tracking your income and expenses. The big thing is that you want to make sure you’re not spending MORE than you earn. From there, you can create a budget for yourself to plan out your expenses and reign in ones that are getting too carried away. Dining out is always a tricky one for us!
Step 2: Figure out your net worth
Your net worth is the amount of money you have (or owe) after you add up all of your assets and all of your debt. The goal is to have a positive net worth trending upward. When you have a lot of cash in your bank account but also a lot of loans, it’s tempting to feel like you’re doing GREAT financially and start spending money unnecessarily, when in reality you’re severely in debt and in the red. Tracking your net worth gives you a clear picture of where your finances really are. You can read more about that (and get my free net worth tracking sheet) here.
Step 3: Create a starter emergency fund
Do you have an emergency fund separate from your regular checking account? This is so important to help prevent you from getting further into debt. Emergency funds are reserved for things like unexpected car repairs, unforeseen medical bills, or losing your job. If you have a lot of high-interest debt, sometimes it can be a good idea to create a small emergency fund of at least $1,000 before you throw any extra you have at debt. It doesn’t have to be exactly $1,000, although that’s what Dave Ramsey recommends. Save whatever you’re comfortable with and makes sense for you. It could be more!
Step 4: Pay off high-interest debt
Once you have a starter emergency fund saved, paying off high-interest debt needs to be your number one goal. It is the biggest threat to your financial health and easily grows out of control. High-interest debt is usually for credit cards, but it could also be things like a car loan or medical bills as well. It may include student loans. Many financial experts state that anything with an interest rate of 8% and above is considered high, so you’ll have to use your discernment here.
If you have more than one high-interest debt, it can be tricky to figure out which one to pay first. Some people pay off the one with the lowest balance first and work their way up from there. Another great way to decide is to pay off the one with the highest interest first, which will save you the most amount of money in the long run.
If you’re anything like me, you want to know WHY you should do something. People have written whole books on why you should pay off debt, but I’ll just give you a couple of quick reasons here:
5 quick reasons to pay off high-interest debt:
Being in debt makes you prone to more debt – If you have high monthly debt payments, it can be difficult to pay for other things that come up, which means you’ll have to take out more loans
It can be almost impossible to get out of high-interest debt just by making minimum payments alone
It eats away at your net worth – if you have $5,000 in credit card debt with a 20% interest, you’ll be paying $558 just toward interest in one year
You also have the opportunity cost of what you could be investing instead – for example, if you put $100 into the stock market instead of toward debt payments, your money could be earning you 9% every year rather than costing you 20% every year
Your credit score will go up – which makes it MUCH easier to get a good deal on a mortgage if buying a house is in your future
Step 5: Start saving for retirement
I’ll be honest. At 30 years old, saving for retirement still feels like something that I should be able to put on the back burner. I’m more concerned about buying a house than saving for retirement! But with longer lifespans and increasing healthcare expenses, saving for retirement is SO important. And the sooner you can start saving, the more it works in your favor. Check out this article from Vanguard that lays out the benefits of starting your retirement savings early.
I know it can be overwhelming deciding where to start and how much to save. If you’re not currently saving anything at all, the first thing you should do is see if your employer has a company match. If it does, contribute at least the minimum amount needed to get the full match. That’s free money! If you don’t have a company 401k or equivalent, look into opening an IRA or Roth IRA. I promise they’re much easier to set up than you’d think!
Step 6: Build a full emergency fund
So you’re tracking your expenses, know your net worth, have paid off your high-interest debt, and have started saving for retirement. Honestly, you’re killing it! Next up is building a full emergency fund. An emergency fund is there to ease some of your money anxieties and give you a financial buffer from the world. Most financial experts recommend saving 3-6 months of expenses in an emergency fund, depending on your circumstances. You can read everything you need to know about emergency funds here.
Step 7: Pay off the rest of your debt
If you haven’t finished paying off student loans, car loans, or any other loans with a “low” interest rate, now’s the time to do that! At this point, you’ve dealt with your most dire financial situations: you’ve paid off the high-interest debt, started preparing for your future to maximize compound interest, and created a financial buffer between you and the world. Now you get to pay off the rest of your debt (except maybe the mortgage) so you can maximize your future paychecks. By now you should have lots of experience in working toward your financial goals, so it probably won’t be quite as overwhelming as when you first started to get your financial life in order. You’re doing amazing, and paying off all your debt is going to feel so good.
Step 8: Maximize retirement savings
You’re debt free! Congratulations. This is huge. Now that you are, you want to throw as much as you can toward retirement savings so that you can get the greatest benefit from compound interest as possible. This will look different for everyone. You’ll have to use your best discretion to figure out what maximizing retirement savings looks like for you. Utilize some calculators to figure out what you think your income needs will be in your retirement. If you’re just really killing it financially, a goal to shoot for is to max out your contributions to your 401k and IRA. The most you can contribute to a 401k as an employee is $19,500. The max for an IRA is $6,000. For most people, that’s more than they can realistically save for retirement each year, but it’s a worthy goal to work toward.
Step 9: Pay off your mortgage
If you’re like me, this step seems so far in the future that it almost doesn’t even make sense to think about and can be a little discouraging. Take heart; you’ll get there! Once you’ve paid off all your other debt, have a full emergency fund, and are saving for your retirement, you can put your extra money toward paying off your mortgage. Think about how much more money you’ll have in your monthly budget without your mortgage payment or how good it’ll feel to have the financial security of owning your home outright.
Step 10: Invest
A lot of times we have this nagging sense that we should be investing much sooner than we actually should. In reality, your finances will be in much better shape if you wait to invest until you’ve taken care of all the previous steps first. Once you are ready to invest, take a look at this book. I found the info in it so helpful!
I should mention that some people like to start investing before they pay off their mortgage. The reason for that is usually the interest you would be paying on your mortgage is lower than the interest you could be earning from investing. Emily Thomas has a great post about that and shares their family’s own mortgage plan here.
Step 11: Be Generous
I list this as the last step because this is the most exciting thing about being in such great financial health. My hope is that you would be generous throughout your entire financial journey, though it will look different in Step 2 than it does in Step 11. It’s popular to grumble about rich people for being selfish with their money right now. Let’s be people who remember how abundantly blessed we are and share what we have.
The point of all this
My hope in writing this is not that you will feel burdened or defeated, but that you will have a plan for moving forward. Just knowing if you’re going in the right direction can be such a relief. You’re probably not going to get there this month, or maybe even in the next 10 years. But making some small choices now will set you on the right path for financial health and give you one less thing to worry about when times are tough.
What excites you most?
Leave a comment and let me know which step you’re most excited about getting to.
I used to feel intense dread as soon as TurboTax started advertising in full force sometime around the beginning of January. I didn’t feel like I really knew what I was doing with taxes and often worried that I was leaving out important information or would get audited by the IRS. But now that I have a few years and a handful of tricks under my belt, tax season is something that I actually — dare I say it? — look forward to. Here are 7 tips to make tax season easier.
7 Tips for Making Tax Season Easier
1. Start compiling important paperwork as soon as it begins to arrive
There’s nothing more annoying than sitting down to do your taxes and then jumping back up every ten minutes to find a different form stashed somewhere in your house. If you set up a folder right now to stash tax documents in as soon as they arrive in the mail, it’ll make the actual filing a breeze.
The same is true for e-documents. Some of my tax forms are mailed to me, but the majority are accessed in my various accounts online. I plan to set aside half an hour sometime before I’m ready to file our taxes to download all the relevant PDFs and collect them in a folder on my computer.
2. Hire an expert, or at the very least some reputable software
If your taxes are relatively uncomplicated, you can probably file them yourself using software such as TaxAct, H&R Block, or TurboTax. If you’re really feeling unsure about doing it yourself or your taxes are more complicated, consider hiring a pro! They may not be as expensive as you think and can often get you a better tax return.
By the way, don’t forget to check this IRS website to find out if you can use software completely for free!
3. Make the experience enjoyable
Pour yourself a glass of wine or cup of tea or whatever drink is currently your favorite. Play your favorite album in the background. Light a candle. Get comfy. Who says filing taxes has to be a total drag?
You can also think of it as an opportunity to see how much money you’ve made, given away, and all the things you’ve accomplished over the last year.
4. Reward yourself with a fun activity afterward
Have something fun you can look forward to afterward, whether it’s breaking into that new craft you’ve been dreaming of or starting the next Netflix series you’ve been eying. Even better, plan to do your taxes the same day as a friend and celebrate your accomplishment of being a real adult together afterward. This provides some accountability and a little somethin’ to look forward to!
5. Think about all the great things your tax money will do
It’s hard to trust something like the government to spend your money wisely. But realistically, a lot of good things probably do happen because of the money you’re taxed, such as social security benefits for people that need them, paved roads, emergency services, education, and so on. I can’t even imagine life without fire departments, and thanks to your tax dollars, we have them.
6. Comfort yourself with the fact that you won’t have to do this again until next year
Tax season always seems to appear so much faster than you expect, but if you get them done early this year, you’ll have a whole year before you have to think about them again.
7. If you’re getting a return, plan out the great ways you’re going to use it.
I have some good ideas for what to do with your tax return in this post. A tax return can be an amazing boost to help you on your way with your money goals. If you plan ahead how you’ll use it before it hits your bank account, it will help you make the most of your money instead of watching it get lost on temporary and less satisfying things like dining out and that extra pair of shoes you don’t actually need.
Since we’re talking about taxes, now is probably a great moment to make next year’s filing even easier
-Save your tax return somewhere safe and somewhere you’ll be able to easily find next year
-Set up systems you need to easily collect the info you need for next year’s return
-Consider making some money resolutions for the rest of the year now that you’ve had a review of the last – I have some great ideas collected here!
Trust me, your future self will thank you!
What are you doing with this year’s tax return if you’re getting one?
I love to hear how people choose to use their money! I hope my 7 tips for making tax season easier was helpful!
Thinking about money in the long term is something that easily stresses a lot of people out. One thing I love about a new year (and a new decade!) is the opportunity to rethink parts of your life and then start fresh. A few years ago, setting money goals kind of felt like a foreign concept and I had a hard time thinking of what my goals could even be. So I did some research and now I have a whole list of money goals you can set in 2020. Read on for inspiration.
20 Money Goals You Can Set in 2020
1. Increase your net worth
Are you tracking your net worth? It’s a great way to keep tabs on your financial health and check that you’re going in the right direction. If your net worth is steadily decreasing, you know something needs to change. On the other hand, if it’s steadily increasing, you know you’re doing something right! You can read how to track your net worth and grab my free net worth tracker here.
2. Increase your credit score
Is it just me or do credit scores feel like a temperamental math teacher who lives to make your life harder and more confusing? Unfortunately, having a bad credit score can cost you a lot of money, and the things on your credit report can even make it difficult for you to find a job. While I don’t think having a low credit score should keep you up at night, it’s definitely important to check in on it and make sure you’re steadily improving. Read more about how to understand and improve your credit score here.
DEBT
3. Pay off a Credit Card
As of 2018, Americans now have a collective $1 trillion in credit card debt. Chances are, you might have some lingering credit card debt yourself. And since interest rates are often so high on credit cards, the debt can often feel impossible to pay off. Make this the year that you take action on it! Come up with a plan for how you can pay your credit card off completely this year. If you have lingering credit card debt, this should be your priority in money goals you can set for 2020.
4. Make 2 Monthly Payments on Your Credit Card
If paying off your credit card entirely feels too overwhelming or impossible, start making multiple payments each month, like after each paycheck you get. Not only will this help you bring your balance down faster, but it can help your credit score too.
5. Pay down student loans
Paying down student loans can also help you improve your credit score and increase your net worth. Set a goal to make extra payments or to pay them off entirely. Your future self will thank you.
6. Refinance your loans
I don’t know a lot about refinancing loans, but I do know that if done correctly, it can save you a lot of money on interest. This in turn will help you pay them off faster so you can move on to better, more exciting money goals. Do some research on reputable sites to see if refinancing would be a good option for you.
7. Make extra car payments
Try setting a goal to make extra car payments every month. Even paying an extra $10 a month can help your finances in the long term. Take stock of your budget and see what’s possible.
8. Pay off your car loan
Better yet, why don’t you pay off your car loan entirely? Just think what you could do without that car payment in your monthly budget. Paying off a loan early will not only add to your monthly budget, but will also give you more room to tackle other goals. This is definitely one of the best money goals you can set in 2020.
9. Make extra mortgage payments
If you’ve paid off your credit cards and student loans, a great next step would be to make extra mortgage payments. You could set a goal to pay an extra dollar amount off by the end of the year, or at least just one extra full mortgage payment by the end of the year.
SAVINGS
10. Save an Emergency Fund
If you don’t have a designated emergency fund yet, this should be your #1 financial goal this year. If you’re still actively paying down debt, a smaller emergency fund of $500 – $1,000 will suffice. On the other hand, if you have paid off your debt, an emergency fund with 3-6 months of expenses is best. This will protect you from job loss, sudden house and/or car repairs, unexpected medical bills, and so many other circumstances. You can read up on emergency fund basics here.
11. Save for Retirement
Make a goal to increase your retirement savings this year. Your first goal should be to contribute enough to your 401k to get the full company match if you have one. Once you’ve done that, you can start contributing to an IRA or bump up your 401k contributions by a percentage or two. If you’re not sure what to focus on, this book was incredibly helpful for me when determining our retirement savings strategy. TLDR; make sure you get that company match. If you’re feeling young and spry and don’t yet see the point of saving for retirement, look into compound interest. If you start saving for retirement in your 20s, your money will multiply in crazy amazing ways. As in, you could have hundreds of thousands more dollars if you start saving earlier in your 20s.
12. Save for a down payment
Whether it’s for a house or a car, it’s good to be prepared! The bigger the down payment you can put down, the better your interest rate, the lower the debt, and the healthier your net worth will be. Win win win. If you don’t have any debt to pay off, this is a great option for a money goal you can set in 2020.
13. Start a vacation fund
If you’re feeling pretty good about your debt, retirement savings, and emergency fund, start saving for something fun! We have a separate travel savings account with Capital One that we squirrel small amounts of money into when we can. It hasn’t led to an awesome vacation yet, but it has helped immensely with travel costs for visiting family during the holidays.
INCOME
14. Find a side hustle
If you’re feeling overwhelmed by debt or your difficulties in starting an emergency fund, then starting a side hustle might just be a good way to go. Consider cleaning houses, walking dogs, house-sitting, or driving for companies like Door Dash. There are so many side hustle opportunities out there right now and you’re bound to find something. Just be wary that you don’t pick one that requires a lot of money up front, as that can take you months to earn back before you start making a profit (if ever).
15. Work on getting a promotion
This one in particular is a worthwhile goal that will yield benefits for YEARS to come. Make it a goal this year to do what it takes to put yourself in line for a promotion at work. Talk to your boss and see if there’s anything more you can do to contribute to the team. Ask if there are certifications you can get that will increase your pay. Make a plan to set yourself up for success and not only will you have extra funds in the budget, but you’ll also be more highly qualified and competitive for future jobs, and it will set you up for bigger paychecks for years to come.
HABITS
Picking 1 or 2 habits to change this year is a goal that will save you money now and for the rest of your lfie. Not only that, but so many of these habit changes will be beneficial for other areas of your life too, like your health and productivity.
16. Cut your fast food habit
This can be an easy one to fall into but is such a money drain. If you can get meal planning and eating at home down, you’ll save a tonnnn of money and will likely be a lot healthier for it too! That’s why this is one of the best money goals you can set in 2020 and one of the best health goals for 2020 too!
17. Quit paying for a gym you don’t use
If you’re not using that gym membership you’re paying for, cancel it and come up with a new exercise plan. There are so many ways you can exercise for little to no money, so there’s no reason to be paying for a gym membership you never use. If you LOVE going to the gym, then come up with a plan for how you can get in your happy place more often to make the money worth it.
18. Cancel unused subscriptions
This is another big money drain you have to be careful with. SO many things come with a subscription now. It’s helpful to evaluate what you’re paying for every few months and cut out what you don’t use. Are you really using Spotify, Amazon Prime, FabFitFun, HBO, Hulu, BirchBox, etc. etc. etc.? You could save hundreds of dollars this year by cutting the things you don’t really use or don’t really care about.
19. Stop throwing food away
I’ll admit, this is a tough one for us too. Often I have lots of intentions to cook all those pretty vegetables I get at the store. But then I get home from work and I’m tired and that frozen pizza sounds like a way better idea. If you’re throwing food away each week, reevaluate your meal planning. One thing I did was start buying frozen veggies that wouldn’t go bad if I didn’t use them that week. Another thing that helped with our food waste was to be more realistic about the number of meals I would cook. Instead of planning a meal for every night, I started planning leftovers into our week. We inevitably have some!
20. Pay Yourself First
It’s tempting to tell yourself that you’ll spend money on whatever needs arise during the month and then put the rest into savings. Realistically though, that rarely happens. Speaking from experience, here. Get in the habit of planning out your spending and saving beforehand, and then put your money into a savings account as soon as you get paid. The best way to do this? Set up automatic drafts into your savings account. This is probably the easiest way to start a habit in the history of mankind.
What’s your financial goal for 2020?
It’s never too late to start setting goals for the next year! Charles and I haven’t even discussed our goals yet, but we will in the next couple of days. Leave a comment and tell me what your goals are! I always love to hear about other people’s financial goals!
You’ve probably given some good thought to your credit score, but what about your net worth? The net worth seems like something only fancy rich people think about, but there’s a good reason why you should be paying attention to yours too. This is actually super simple to figure out and a great way to get a snapshot of your overall financial health. To calculate your net worth, you subtract what you owe from what you own. Read on to learn more about how to calculate your net worth, and why you should!
Calculating your net worth is easy peasy, but if you’re wanting a tool to help you get everything down in one place, I’ve created a spreadsheet for you! Enter your email below to receive the Net Worth Calculator and sign up for more money and personal growth tips delivered to your inbox.
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Want a little help calculating all of your assets and liabilities? I've created this free google sheet to help you calculate your net worth.
You’ve probably given some good thought to your credit score, but what about your net worth? The net worth seems like something only fancy rich people think about, but there’s a good reason why you should be paying attention to yours too. This is actually super simple to figure out and a great way to get a snapshot of your overall financial health. To calculate your net worth, you subtract what you owe from what you own. Read on to learn more about how to calculate your net worth, and why you should!
Calculating your net worth is easy peasy, but if you’re wanting a tool to help you get everything down in one place, I’ve created a spreadsheet for you! Enter your email below to receive the Net Worth Calculator and sign up for more money and personal growth tips delivered to your inbox.
I feel like that’s a really important point to get across. How much money you have or whether or not you’re in debt does not dictate your value as a person. You are so much more than that number. Even so, calculating your net worth can help you get an idea of where you’re at financially and whether you’re going in the direction. Use it as the tool it is and don’t let it become a statement on who you are.
Why should you calculate your net worth?
If you’re anything like me, you reeeeeallly need to know why you should do something before you do it. Don’t worry, I’ve got your back. You should calculate your net worth for several reasons.
First of all, it gives you a measure of your true overall financial health. Maybe you’re one of those lucky ones who’s bringing in six figures shortly after college and you feel like you’re doing GREAT. Calculating your net worth might help you realize that even though you’re bringing in a decent amount of money each month, you’re spending most of it and you still have $50k in student loans, plus a $20k car loan for that shiny new car you just bought. Nothing to panic over, but it IS information that you should have so you can adjust accordingly.
Chances are, that’s not your scenario. Maybe you’re a teacher who’s only bringing in $30k a year. BUT you started contributing to your retirement right away and don’t have student loans or a big car loan. Your net worth might not actually be as bad as you thought.
But wherever your net worth is, the real value in calculating it is so that you can track your progress financially. You might end up draining your savings account specifically earmarked for a house on your down payment, but now you have equity in a house. Your savings accounts will fluctuate, but you want your net worth to steadily rise upward month after month. If there’s a downward trend, you’ll know you need to readjust some things.
How to Calculate Your Net Worth
This is easy peasy, seriously. It might take some time to round up all the information, but it’s as easy as putting it into two different columns and subtracting one column from the other.
Step 1 – List all your assets
What counts as an asset, you ask? Different experts will have varying answers, but an easy way to think of it is what could give you actual cash value in a pinch. Assets can include
cash
savings accounts
investments
vehicles
jewelry
art
property
your home
The key to listing your assets in the most realistic way is to make sure that you list what you could sell your assets for, not what you actually paid. Used engagement rings don’t sell for much, and cars depreciate a lot over time. Furniture is never worth as much as people think it will be. In order to have the most accurate picture of your financial health, do some *quick* research to see what your stuff is actually worth.
Step 2 – List all your debts
This isn’t as fun as listing all your assets, but still a necessary part of the equation. List everything from credit card debt to student loans. If you have a mortgage, list what you have left to pay too. Total it all up and you have the grand total of all your liabilities.
Step 3 – Subtract your debts from your assets
Now that you have a dollar amount for all your assets and all your debts, you can tally up what your net worth is.
net worth = assets – liabilities
And there you have it! You’ve just figured out your net worth.
Net worth at a glance
If you’re looking for a quick way to keep track of your net worth, you can do so with all of the following budgeting websites.
The only downside in using these different websites to calculate your net worth is that it doesn’t account for things that you can sell, such as jewelry. Other than that, they’re a quick and easy way to figure out your overall net worth and make sure that you’re going in the right direction financially.
How often should you check your net worth?
This depends on your personal preference, but checking your net worth once a month is usually a good goal to shoot for. The main aim in checking your net worth is to make sure that you’re headed in the right direction. If your net worth is steadily decreasing, or even just staying stagnant, you’ll know that you’ll need to make some adjustments. This can only be done if you are checking it daily.
Mindset Check
Your net worth does not equal your self worth! It’s so easy to get our identities all wrapped up in how much money we have, isn’t it? While money is important, it’s not the end-all, be-all of our lives. If you calculate your net worth and you’re feeling really down on yourself, take a moment to reflect on why you might be feeling that way and how you can change your thought patterns to be more constructive. Believing in your ability to grow in your finances is half the battle. It feels hard now, but just put one step in front of the other and eventually you’ll see your net worth growing each month. You’ve totally got this!
I’ve been checking my net worth on a monthly basis for quite some time now, and it’s exciting to see the progress that I make over time. Be sure to check out the net worth calculator. You can drop your email below for all the deets.
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Want a little help calculating all of your assets and liabilities? I've created this free google sheet to help you calculate your net worth.
You guys, credit cards can be scary. I remember when I started looking for my first credit card. I knew that credit cards could get you in a lot of trouble. I also knew that I might not be approved, and that applying for too many would hurt my credit, which made me afraid to apply for any. And that’s pretty much all I knew. Years later, I know A LOT more about picking out a credit card, plus I’ve learned it’s not nearly as scary as I thought it was. Here’s what you need to know about choosing the right credit card.
#1 – Look at the APR
You’re probably somewhat familiar with that fun little acronym. It stands for Annual Percentage Rate, and it basically dictates the amount of money a credit card company can charge you if you don’t fully pay off your credit card each month. Say you have 14% APR and you spent $1,050 on your credit card last month. You pay the minimum of $50, so the other $1,000 on the statement is what you’ll pay interest on. Different companies calculate this differently, so you’ll have to ask your bank exactly how the APR is calculated.
Here’s the thing, if you’re using your credit card right, the APR shouldn’t matter too much. The reason is because you should be paying off your credit card balance in full each month anyways. If you don’t, it can cost you a lot of money and hurt your credit. So take a look at the APR when you sign up for a credit card, but know that it’s not the most important factor unless you plan on getting yourself into debt with said credit card.
#2 – Figure out the Fees
Most credit cards have an annual or sometimes even monthly fee. This is more important than the APR because it’s completely outside your control. Look for credit cards with no or really low monthly fees. The only exception is if you plan on using a credit card for its specific perks AND if those perks outweigh the annual fee.
#3 – Consider the Perks
There are a lot of different perks that credit cards can offer. You can get different percentages for cash back for different categories or collect travel credit. Think about what’s going to be the most valuable to you and whether or not you’ll be able to use the credit cards for their perks. Don’t be too drawn in for the sign-up bonuses they offer, especially if you have to spend way more in the first 3 months than you normally would. Oftentimes they’ll give you an extra bonus if you spend in the range of $4,000 in the first three months. But if you normally only spend $3,000 in three months, then the bonus is going to need to be more than $1,000 for it to be worth it to you.
As far as monthly perks, even if you’re only getting 1% back, that’s free money. Unless you’re not paying off your monthly balance. If you only use your credit card for $200 of groceries each month and get 1% back on that, that’s only $24 a year, which sucks if your annual fee is $100. These are the types of things you need to evaluate when you’re picking out a credit card. Be realistic about your spending habits and also of your current financial situation.
#4 – Preapproval: What it is, how to use it
One helpful thing credit card companies do is let you see if you qualify for preapproval. This isn’t any guarantee that you’ll be approved for the credit card once you apply, but it should give you a good indication. It’s basically a soft check on your credit, which is helpful since too many hard checks can hurt your score.
#5 – Low or no credit? Try this.
If you somehow made it out of college without getting a credit card, you might discover that it’s harder to get one now, especially if you have either low or no credit. A good option for you is to use a secured card, which is sort of like a credit card with training wheels. It gives a credit card company an opportunity to see how well you do with a credit card since there isn’t any other data (credit history) to go off of.
Here’s how it works. You give them a certain amount of money, usually a few hundred dollars, which becomes your limit. Each month you pay your bill like it’s a normal credit card and it will start slowly building your credit. After a few months, they should graduate you to a normal credit card. Make sure you read up on the secured card to ensure that they WILL graduate you to a regular credit card. Also make sure that they report your payments to credit bureaus, otherwise it doesn’t actually build your credit.
That’s pretty much it
No seriously, those are basically the only things you need to look at when you’re picking out a credit card. Of course, there are other things related to having a credit card that you’ll probably want to know too. Half the anxiety about picking out a credit card is knowing whether or not you can use it the right way! Here’s what you need to know.
Now that you have it, use it well!
Pay off your monthly balance!
This can’t be stated enough. It seems so simple, but so few people actually do this and really suffer because of it. Credit card companies make their money off of people who don’t pay their balance each month. Be one of the few that actually gains money from their credit card.
One of the best ways to ensure that you pay off your monthly balance is to set up automatic payments. With my bank, I can set it up to pay the minimum balance, the statement balance, or another balance of my choosing. Set up your automatic payments to AT LEAST pay the minimum each month, in case you forget. Missing a payment entirely is the quickest way to hurt your credit. I’d highly recommend setting it up to automatically pay your entire statement balance though.
Don’t forget about their extra perks!
In order to get the most out of your credit card, make sure to read up on all the perks they offer. This can feel tedious, but it could save you hundreds of dollars. Most credit cards offer purchase protection, which is awesome. It’s essentially an extended warranty on everything you buy with that credit card. So if your iPhone breaks three months after you bought it and you opted out of Apple Care, see what your credit card company can do for you. Credit cards also often provide things like free rental car insurance. Make sure you know what they have to offer!
Some credit cards require you to use your cash back or travel vouchers within a time period or you lose them. Don’t lose them! Pay attention to whether you need to opt-in to certain cash back rates or use your points by a certain day.
How it will affect your credit score
When you first sign up for a credit card, it might lower your score at first. That’s because credit checks can affect your score. In the long run, though, it’ll raise your score (if you use it right!) because you have to have credit in order to show that you’re responsible with credit. The best thing that you can do for your credit score is to pay off the balance each month.
Other important things to know
We touched on the statement balance vs current balance vs minimum payment before, but I think it’s worth defining them again because I found these terms really confusing at first.
Statement Period: You’ll get 12 statements a year from your credit card, each covering a length of time (about a month) called the statement period. You’ll have to check your last statement to see when your statement period begins and ends, as the dates can vary depending on the company. A statement’s due date must fall on the same day each month. For example, your statement period might be from August 6 to September 5th.
Statement balance: All the money that you put on the card during that time frame (August 6-September 5 if using the example above) will be your statement balance. Your bill for that statement period will be due at least 21 days after the statement ends, so September 26th or later. Again, this varies depending on the credit card, so make sure you check your statement so you know when to pay your bill.
Current balance: This is just what it sounds like–everything on your credit card (that hasn’t been paid off yet) to date. Usually your statement balance will be lower than your current balance.
Minimum payment: This is the minimum amount you’re required to pay on the credit card without it being considered a missed payment. The minimum payments are usually very low. If all you do is pay the minimum payment, it could take you 20+ years to pay off some balances without even adding more money!
Don’t Overthink it
I know I probably just gave you information overload, but this is seriously ALL you need to know. Don’t overthink it. You have all the knowledge you need now to make an informed decision. Weigh all the options and pick the one that’s right for you. You’ve got this.
Wanting to learn more about your personal finances? I also have information on the following topics:
Hi, I’m Kelsey! I live in the DC area with my husband and two cats. I currently spend my days working from home, reading all the books, and enjoying home life in our new-to-us 1940s condo. Read more about me here.
Step 9: Pay off your mortgage
