In this guest post, Christopher Hayman offers 11 financial tips to all professionals that will make a layoff or downsizing less stressful. He also offers advice to HR professionals on supporting employees when it comes to making financial decisions.
Personal finance shouldn’t be complicated. Sure, not everyone can be an expert in the stock market or tax code, but when it comes to budgeting, saving, and other personal finance essentials, there are some things everyone ought to know.
If you want to keep your financial health on track, these are the top eleven personal finance rules you need to follow.
Spending and Budgeting
1. Use a (simple) budget
What’s the best budgeting method: zero-based budgeting, 50/30/20, the envelope system, or another
? The truth is, the best budget is the one you can stick to.
Whether you prefer to track every cent in a spreadsheet or app
or give yourself a spending limit each month without worrying where it goes, what matters is that you have a budget that accounts for income, expenses, and savings goals and that you commit to it.
2. Avoid becoming house poor
Your home is your biggest expense, which means it has the biggest impact on your overall financial health. If you’re spending more than you can comfortably afford on housing, you’ll have less for everything else. Consider a downsize if you’re in over your head on housing costs. When shopping for a new home, follow the experts’ advice and keep total housing costs (mortgage, utilities, insurance, and taxes) 30% of your gross income.
3. Avoid impulse spending
From little purchases at the checkout stand to big buys like electronics and cars, unplanned purchases are the fastest way to derail your financial plan. If you’re inclined to impulse shop, set rules
for yourself like waiting 24 hours before small purchases and 30 days before big ones.
Debt and Credit
4. Pay off high-interest debts first
When paying down debt, most people attack the smallest balances first. It’s understandable — paying off debt is a daunting goal, and it feels good to get small wins early in the game. However, this strategy leaves you paying more
over the life of the loan. When paying down multiple debts, apply payments beyond the minimum to your highest-interest debt first and you’ll come out ahead.
5. Avoid carrying a credit card balance
Credit card debt is the highest-interest debt most people have, and at an average APR of 19.24%
for new accounts, it can be crushing. If you use a credit card, pay off the balance every month. If you find yourself carrying a credit card balance more often than not, it may be wiser to get rid of your credit cards entirely and use debit instead.
6. Monitor your credit report
Monitoring your credit lets you know where you stand financially. It also ensures you find out ASAP if you’ve been targeted by identity theft or fraud. Every consumer is entitled to one free credit report
from each of the three credit reporting agencies per year, for a total of three reports annually.
7. Carry life insurance if you have dependents or debt
Life insurance isn’t strictly necessary for single, childless adults or empty nesters. However, if you have children or a dependent spouse, life insurance is a must
. Life insurance ensures that your family can cover living expenses, childcare, and debts if you were to pass away and provides an inheritance for your children if they lose both parents. If you’re single but have cosigned loans, carry a policy big enough to cover outstanding debts so your co-signer isn’t held responsible.
8. Consider the full costs of health insurance
You shouldn’t buy health insurance according to which plan has the lowest monthly premium. There are a lot of other costs
that contribute to your total healthcare spending, including deductibles, copayments, and coinsurances. While adults with minimal healthcare needs may save money with a low-premium plan, people who visit the doctor regularly usually save by purchasing a plan with more coverage.
9. Don’t skip disability insurance
A lot of people skip over disability insurance, even when it’s offered by their employer, but they shouldn’t. Disability insurance is invaluable if you get sick or injured and are unable to work — a situation that’s more likely
than you think. Disability insurance is offered in short-term and long-term policies. Check what your employer offers first, then decide if you need more coverage.
Savings and Financial Goals
10. Budget for savings
If you wait to save when you have money left over, you’ll never build your savings. Instead of putting savings last on your financial priority list, pay yourself first
. Set up automatic contributions to retirement accounts, and work with HR to direct deposit a portion of your paycheck into savings.
11. Have an emergency fund
In addition to general savings, every household needs an emergency fund. An emergency fund is just-in-case money for when your car breaks down, a tree limb crashes through the roof, or an illness lands you in the ER. Instead of going into credit card debt to cover unexpected bills, you can use your emergency fund and move on. If you own pets, consider starting a separate pet emergency fund for surprise vet bills.
How HR can help employees make good financial decisions
As HR professionals, educating employees about the financial resources available to them is an important part of your role. Since benefits are a big factor in workers’ employment decisions, it’s also worth reviewing your company’s benefits package to ensure you’re offering insurance, savings plans, and other benefits that help you attract and retain quality staff.
HR can also be a valuable resource for employees transitioning out of the company. A career transition means losing access to a variety of benefits. By providing information on 401(k) rollovers and life, health, and disability insurance options, your HR team can solidify your company’s reputation as a business that puts its employees first.
Earning a good income at a great job is the first step towards financial security, but what you do with the money you earn matters even more. If you’re wondering about the best way to get your financial life on track, start following these tips and, if you need guidance, reach out to your company’s HR department to learn what financial resources are available to you.
A marketing manager by day, Christopher Haymon uses his financial superpowers in his off-hours to help others learn to conquer debt and reach for financial freedom.