As the Education and Communication Director for American Financial Solutions, Becky House's entire job is ensuring we're smarter with our money. She chatted with us about how to set goals and stick to them.
What's the value of setting financial goals?
The value of setting financial goals is having a plan - steps that you can take to get you where you want to be financially. When you do not have clear goals, it is hard to make progress. You may be spending the money you "wish" you had for a new car on soda pop, movies and dinner out. Goals help you prioritize where YOUR money is going to go.
How do you know a goal is realistic, versus when it might be something you wait to reach for?
You can set both long- and short-term goals at the same time. In fact, that is often what happens. For instance, I had a client who wanted to buy a house. The timeline on that goal was about four years out. They had some credit issues they needed to clear up, and they also needed to start saving towards the home purchase. So each month, they had a mini goal - increase savings by $100.
In addition, meeting short-term goals can help you feel accomplished and motivated to keep moving.
What are some misconceptions about personal finance you still see out there?
One misconception is that you have to be in debt to build credit. The reality is, if you use a credit card for something small - a normal monthly expense like a music or video subscription - and pay it off each month, you are building a positive credit history. You keep your balances low, and you have a great payment history. Both are good for credit.
Another misconception is that you have to have a lot of money in order to save or achieve financial goals. Of course, you have to have some money, but what is most important is that you pay attention to where your money is going (or not going). Again, I had a client who made minimum wage. After reviewing her spending, she reduced some expenses and adjusted how and when she paid her bills. By doing so, she was able to save for a down payment on a car. She was also able to save enough money to take her child for an overnight getaway. Success is how we define it. Some people might not look at an overnight stay two hours away as a vacation, but this family was ecstatic.
How do you recommend dealing with your credit card debt if you still need to use your cards for some purchases?
This is where setting financial goals is so important. The idea is to focus on the goal for getting out of debt. Many people say, "I want to be debt free." But the question is, why? What does it mean to you? For some people it means security, for others it means freedom from anxiety, for others it means they will have the money available to take a trip. It is different for everyone. That reason has to stay in the person's focus at all times.
If someone wants to pay off credit card debt, the first step is determining how much money they can afford to put towards those debts every month. Select one card, preferably with the lowest interest and no fees, to use for any necessary credit card purchases. The rest of the cards are off limits. If that means freezing them to resist temptation, cutting them up, so be it. It doesn't mean they have to deactivate or cancel the cards at that point, unless they cannot stop using them. The money they are sending to the credit cards each month should stay roughly the same until the cards are paid off. People should also talk to the creditors and ask for an interest rate reduction. The creditor may not agree, but if you don't ask, it definitely will not happen.
The card that is left open needs the same level of care as the cards being paid off. Use it sparingly and attempt to pay it off in full. Keep decreasing the debt level.
Another option is to talk to a certified credit counselor. They can help people understand options for repaying debt and help them develop a plan.
What's the future of personal finance?
Well, we know it is based in technology. The options for managing a budget; logging into credit, retirement and banking accounts; and withdrawing and depositing money with the push of a button are already here. What we need to figure out is how to integrate financial education into those interfaces in a way that is engaging. They are already using the technology; put the education there, too.