Money Management

And it’s not too late to add it to your list. 

Now that 2023 has kicked into gear, you may be ready to start tackling some of your New Year’s resolutions. And several of those may be financial in nature.

You might, for example, have the goal of spending less money so you can add to your savings account balance. And you may be hoping that 2023 is the year you finally start setting money aside in a retirement fund, like an IRA account.

But there may be another important item to add to your list of New Year’s resolutions this year. It’s something that could provide the people you love the most with the financial protection they deserve.

Is buying life insurance on your list?

If you don’t have a life insurance policy in place already, then getting one should be a priority in 2023 if there are people in your life who depend on you financially, or stand to get hurt financially in the event of your passing.

Say you’re married with two kids and you’re the sole breadwinner in your family. How would your spouse and children manage their expenses if something were to happen to you?

Even if you don’t have kids or aren’t married, it could still pay to get life insurance if you support people financially. You may, for example, have a younger sibling in college who lives with you rent free during the school year. If you were to pass away and therefore stop paying rent or the mortgage on your home, would your sibling be able to keep up with that cost? Or would they have to scramble to find somewhere to live?

Life insurance is more affordable than you think

A big reason some people might hesitate to buy life insurance is that they’re worried about the cost involved. But actually, there’s an easy step you can take to keep your premiums costs down — buy term life insurance instead of whole life insurance.

Term life insurance will only cover you for a limited period of time, whereas whole life insurance will cover you for the rest of your life. Plus, term life insurance won’t accumulate a cash balance you can borrow against or cash out, whereas a whole life insurance policy could serve as a cash source for you if you need it.

But term life insurance is generally much less expensive than whole life insurance. And opting for a term life policy could spell the difference between being able to afford coverage or not.

If you’re worried about only having coverage for a limited period of time, keep in mind that many term life insurance policies are set up to last for 30 years. And that may be more than enough for you.

Let’s say you’re in your mid-30s with a spouse of the same age and two young kids. If you buy a 30-year term life policy, that coverage will be in place until your kids reach adulthood. And in 30 years, your spouse should be eligible to withdraw from their retirement savings penalty free and also start collecting Social Security. So if your coverage runs out at that point, it shouldn’t leave your loved ones in the lurch financially.

You may have a long list of New Year’s resolutions you’re looking to tackle in 2023. But if buying life insurance isn’t on that list, make a point to add it.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Do you know where your money goes each month? 

When you think about getting rich, you might imagine winning the lottery or inheriting a fortune from a long lost relative. On a more practical level, you might hope for a pay raise or lucky break in the stock market. But bestselling author Dave Ramsey says most people already have their most important wealth building tool at their fingertips — their incomes.

Ramsey goes on to explain that if you spend a lot of your income servicing debt, you’ll struggle to get rich. In a recent tweet, the personal finance guru said: “Your income is your most important wealth building tool. As long as your money is tied up in monthly debt payments, you can’t build wealth.”

Ramsey’s guide to building wealth

Dave Ramsey has built a brand around his straight-talking money management advice, particularly the importance of becoming debt free. If you’re carrying debt, particularly credit card debt, it will eat into your disposable income. Not only will you have to make monthly payments, you’ll also likely be paying interest on that money. Interest payments can add up and severely hamper your ability to become financially independent.

Being debt free is only part of the picture. Ramsey argues the way to build wealth is to live below your means, avoid debt, and invest consistently. If you spend less than you earn and use the difference to buy assets that will generate income such as buying stocks, over time you can become wealthy.

Here are some of the findings from Ramsey Solutions’ survey of 10,000 millionaires:

94% said they live on less than they earn.75% have never carried a credit card balance.75% said they built wealth through regular, consistent investing.

The good news is that many millionaires didn’t earn ridiculous salaries or inherit big bucks. The route they followed is one that many of us could emulate. The bad news? It could involve some lifestyle changes, particularly if you carry debt.

Paying down debt is easier said than done

Telling people to avoid debt is all very well, but there’s a reason debt levels in America are rising. Higher living costs have made it difficult for some people to cover the essentials, never mind putting money aside for the future. Some people take on debt because of medical emergencies or other financial crises, even if they know it could cost them more in the long term.

Moreover, many Americans are living paycheck to paycheck and struggle to break out of that cycle. The challenge is that if you’re spending every cent you earn, it is extremely difficult to build any kind of financial security. For example, it’s only when there’s a decent gap between your income and your expenses that you can do any of the following:

Build an emergency fund: If you have three to six months’ worth of living expenses socked away in a savings account, it will cushion you against the unexpected and mean you’re less likely to have to borrow money in an emergency.Pay down debt: There are many different ways you can tackle your debt. You might tackle the smallest balances first so you can celebrate your progress. Or you might focus on the debt with the highest interest rate so you pay less in interest overall. Whatever approach you choose, you’ll need extra cash and a plan.Invest for the future: Once you’re set on your short-term financial goals, you might be able to turn your sights to the future. One way to build wealth is to buy stocks or other assets that will generate income over time. It’s important to keep a long-term horizon and only invest money you won’t need in the coming five to 10 years.

Increase the gap between your income and your expenses

Ramsey says that your income is your biggest wealth-building tool. I’d argue that it’s actually the gap between what you earn and what you spend. That’s the cash you can use to become more financially secure.

If you’re unsure of where to start, take a look at where your money goes each month. A budgeting app might help you track your spending and identify areas where you might cut back. You may feel like you’ve already made all the cuts you can. In which case, perhaps you could take on extra hours at work or even a side hustle to bring in some more cash.

Whether you do it by cutting costs or earning more, increasing that gap is a crucial part of building wealth. Until you do that, you’ll struggle to achieve other financial goals.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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It’s never too late to change how you manage your money. 

Life is a constant learning process. I’ve been writing about financial topics for several years, but I continue learning every day. I’ve made my fair share of money mistakes over the years, but I want to evolve. Are you hoping to fix some of your financial mistakes in the year ahead? If so, you’re not alone. Here are some money mistakes I plan to fix as I navigate life in my 30s.

1. Increase my retirement contributions

I opened my first retirement account when I was 22. Even in my early twenties, I was obsessed with financially setting myself up for success. But I lacked the extra funds to do a lot back then. Unfortunately, for many reasons, I didn’t put much money toward retirement during my twenties.

But that’s no longer the case in my thirties. Luckily, my income situation is different now, so I’ve been able to increase my retirement contributions significantly over the last few years. Now at age 35 and beyond, I plan to contribute 15% of my pre-tax income to retirement. I don’t want to be unprepared when it comes time to retire because I know life will fly by.

2. Get better at stashing excess cash in my savings account

There’s something about maintaining a high checking account balance that boosts my confidence and makes me feel financially secure. I have a feeling I’m not the only one with this habit. In fact, after talking with some of my friends and colleagues — I know I’m not alone.

However, there are times when I keep too much extra money sitting in my checking account. It looks good sitting there, but it’s not doing much for me. The best practice is to move excess cash into an interest-earning savings account. I’m getting better at moving over spare cash, so I don’t miss out on free money. I love my high-yield savings account.

3. Not being afraid to invest in me

If you’ve had a frugal mindset for years, breaking that habit can be a challenge, even when you’re doing well financially. It’s been a struggle to get comfortable spending money on myself. For many years, it felt like a waste of money. But I’m getting better at spending money on myself.

Investing in myself is a win for my current self and future me. Whether I’m improving my physical or emotional health, boosting my professional skills, or making my living space a better place — it’s a smart money move. Try to remember that it’s okay to spend money on yourself. If that’s difficult to do, you might start small and work your way up from there.

4. Boosting my emergency fund

I’ve always been good at saving — even if I only had a bit of extra cash to set aside. But having a plentiful emergency fund is a newer phenomenon for me. As I navigate my financial journey, I am working to boost my emergency fund. It’s never a bad idea to be prepared for unexpected future expenses and new life situations, and I’d rather be overly prepared rather than not at all.

5. Get better at tracking my spending

While I don’t spend excessively, I know I can make improvements. I’m getting into the habit of analyzing my spending every few months and then making adjustments if necessary. When life gets busy, it’s easy to go through the motions and forget to check in on your spending.

But by taking only a few moments to do a spending assessment, you can stop poor spending habits before they get out of control. I make sure to do this every couple of months. I consider it a financial win if I can free up some extra cash for my savings and retirement goals.

It’s never too late to make financial changes

If you’re feeling discouraged about your finances, please know that it’s not too late to make changes. We’re all doing the best we can with the knowledge we have. Review our personal finance resources to learn more and get inspired to make money moves that serve you well.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

 Read More