July 2023
Barbara O’Neill, Ph.D., CFP®, AFC®
Distinguished Professor and Extension Financial Management Specialist Emeritus
Rutgers Cooperative Extension
A perceived loss of control often results in people feeling worried, stressed out, and anxious. This is true whether the source of stress is commuting (e.g., being stuck in traffic) or relationships (e.g., intra-family fighting) or personal finances (e.g., late payments on bills and growing debt). With the first half of 2023 now in the rear view mirror, take steps to seize control of your finances during the remainder of this year.
Below are twelve aspects of personal finance where people can exercise some control:
Fear- Fear and greed are two powerful money emotions. Expect stock market volatility and avoid fear-driven panic selling of stock, mutual fund, and/or exchange-traded fund (ETF) shares when market indices plummet.
Greed- Many investors think "they're smarter than average." They are not. Smart investors don't gamble with their money. They hold quality stocks for the long term and keep FOMO (fear of missing out) feelings in check.
Financial Goals- Goals can be short- (under 3 years), medium- (3–10 years), and long-term (10+ years). Use this Rutgers Cooperative Extension worksheet (PDF) to break goals into small, actionable steps with time deadlines.
Budgeting- The first step is to track spending for a month. Next, project monthly fixed (e.g., rent) and variable (e.g., food) expenses. Finally, use a budgeting app or spreadsheet to monitor spending and adjust as needed.
Spending- Impulse spending is a big way that people lose financial control. The remedy is practicing mindful spending by comparison shopping and waiting 24 hours before making large ($100+) non-essential purchases.
Saving- The key to success is regularly setting aside a portion of income for savings; i.e., pay yourself first. Automate transfers (e.g., checking to savings) and direct deposit to ensure consistent savings contributions.
Debt- Debt repayment can be accelerated beyond making minimum payments using the avalanche (highest interest rate first) or snowball (small balance first) method with extra cash. Other proactive strategies include negotiating with creditors to lower interest rates and debt consolidation if interest rate math works out.
Emergency Fund- A commonly recommended amount of savings for unexpected events is 3–6 months of essential living expenses. Open a separate savings account and contribute regularly until it is fully funded.
Investment Expenses- High expenses reduce investment returns. As a result, many investors never "beat the market" and, in fact, lag it by 2%–3% per year. Buy stock cheaply through low-cost ETFs or index funds.
Income Taxes- Two tips are avoiding short-term capital gains (taxed as ordinary income) and saving money in tax-deferred plans to get a federal tax deduction for the contribution and tax deferral on investment earnings.
Human Capital- Upgraded knowledge and skills (e.g., college degree, certification, specialized training) help keep workers employable and may result in promotions or new jobs that provide higher income and/or benefits.
Financial Literacy- A person's financial education is never done. Try to learn one new thing about personal finance every day. Sources of information include books, articles, courses, webinars, podcasts, and more.
In summary, while interest rates and stock market returns are beyond our control, everything listed above is.
For financial information and worksheets, visit the Rutgers Cooperative Extension Personal Finance website.