Buying a home this year? Here’s how to get your finances together.

Just about one-third of Americans say their financial life is worse than they thought it would be.

That’s the primary conclusion of a new study by the National Endowment for Financial Education (NEFE) — that the cause of their financial stress is something as simple as ongoing transportation expenses, housing repairs or maintenance, or even paying medical bills reveals why so many Americans feel the economic recovery has left them behind.

“We have to stop looking at unexpected events as not if they will happen, but when they will happen,” says Paul Golden, NEFE’s executive director.

Indeed, it’s the small drip-dropping of unexpected expenses that often leads to a financial life unraveling. And that puts buying a home out of reach for many.

In today’s much stricter lending environment, measuring one’s ability to repay a loan has become formulaic. To be approved for a mortgage, you have to show you have enough income to make the monthly payments of principal and interest, real estate taxes and insurance, and enough savings in reserve. That’s a pretty high bar.

For most of us, the good news is that turning your financial life around doesn’t require much more than a good dose of discipline. Spending less than you make, putting off unnecessary expenses, and saving the rest is the recipe for financial success.

So, as we move further into 2017, and everyone heads back to the gym and goes back on their diets, here are some personal financial resolutions you might want to make:

• Reverse engineer your savings process. How much do you want to save this year? Is it $1,000, $10,000 or some other number? Whatever the amount, write it down, and then reverse engineer the process of saving to that specific number. In other words, if you want to save $1,000 by the end of the year, you’ll need to save $2.74 each day to get there. If you want to save $10,000 by the end of the year, you’ll need to save $27.40 per day. Understanding how numbers work is the first step to achieving your financial goals.

• Make saving your top priority. If your mouth waters every time you walk by a slice of chocolate cake, you may find saving money difficult to do. That’s natural, but it doesn’t mean you can’t. It means you haven’t made the tough choices to make it possible. So, make saving your top priority in 2017. Learn the art of “deferred gratification,” which may mean saying no to yourself and your children. (If you have children, engage them in the choices you have to make so that they understand why they can’t have a new toy or go to a local restaurant.) Try to find ways to save everywhere. On one of Ilyce’s radio shows, a listener told her that she still goes to restaurants with her family, but no one gets a drink other than water: no alcohol, no sodas. Doing that shaves about one-third of her bill, and helps her save more than a thousand dollars every year.

Take it day by day. Big numbers are hard. But saving $2 or $3 per day sounds doable. The big question for most people is the “how.” One of the most successful strategies Ilyce has employed over the years is using cash over credit or debit cards, and then “saving her change.” At the beginning of the week, figure out how much cash you need for the bare minimum of purchases, including food and transportation to your job. Put that cash in an envelope and use it for the week. At the end of the day, take whatever change you have in your pocket and put it in a jar. Then, the next day, break a new bill. At the end of the week, you’ll probably have a few bucks in your change jar. The second week, remove your change and your lowest denomination bill from your pocket, like a $1 bill. The next week, take change and two $1 bills. Over time, you’ll get used to spending less because you’ll have less in your wallet.

And, remember this: Whether you hit your goal exactly by the end of the year is largely irrelevant. What you’re trying to is build a foundation of financial stability, with good money habits, that will last you a lifetime.

 

Ilyce Glink and Samuel J. Tamkin
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