Ask the Banker

How Do I Start to Plan My Financial Future?

Sponsored by New York Community Bank

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Your future-- or even just the future in general-- can be a scary subject to think about. Your financial future can seem like a nightmare, especially if you are just getting out of college or are at the beginning of a new chapter in your life. However, it doesn’t have to be so terrifying or intimidating. Baby steps can be taken and small changes can be made so that saving money for the future and having control over your finances can eventually become quite easy. Here are a few steps you should take before diving into saving your pennies.

1- What Do I Have To Work With?

· Make sure you have income before taking any other steps. There can be no savings if you have no source of income, which also means you cannot pay for any of your expenses or needs if you have no source of income either. Savings cannot be accomplished if your expenses and needs aren’t being met by a sufficient income. Be sure to secure income before thinking about building a savings plan.

· That being said, it’s okay to explore job options that aren’t exactly what you want or what you went to school for. Obtaining a job that doesn’t fit what you want doesn’t have to be a bad thing. It can act as the momentum and funding you need in order to pursue your passions/ideals on the side until it evolves into your main source of income. You never know where an unexpected opportunity will take you. I always thought I would be an NFL Quarterback, but working at New York Community turned out to be a great opportunity for me.

2- What Are My Ultimate Saving Goals?

· Start with short term goals, like saving for a night out with your friends. For example: tell yourself you are going to try and pack lunch for work/school at least two to three times during the upcoming week or a set number of times throughout one month. Let’s say lunch costs approximately $20. If you pack lunch two days out of one week, you save $40. If you pack lunch three days, you save $60. Accomplishing this short term goal will not only feel fulfilling, but will motivate you to achieve your long term goals. Ironically even today, 23 years later, I still pack my lunch for work. Old habits die hard. If you take those lunches over 23 years and estimate my personal savings of $10 a day, I probably have saved around $75,000 just on food alone!!

· As for long term goals, they can be made for anywhere between six months to five years or more. For example: you can set out to save $5,000 during the span of one year for a vacation with your family the following year or save $10,000 towards a car you really want to buy. Accomplishing your short term goals of saving $40-$60 a week can add to the money you have already set aside for general savings, which can be set aside whenever possible.

3- How Do I Budget According to My Goals?

· In order to create a budget, you have to adjust your spending according to your income. This means looking at how much you are paid during each pay period (a pay period can range from daily, weekly, bi-weekly, or monthly) and making sure every dollar is accounted for in your budget so you have no room for unnecessary spending.

· The general guideline you should follow when generating a budget is income à expenses à goals (savings). Expenses are generally defined as the bills or necessary spending you need to do in order to complete day to day functions (i.e. utility bill, mortgage, gas for your car(s), groceries, etc.).

· As you are creating your budget, you should differentiate your needs vs. your wants then prioritize what can fit within your budget. Needs are typically the same as expenses, but can also include medication, clothing, etc. Wants normally go along the lines of going out to eat, buying the latest fashions, video games, jewelry, movie tickets, etc. Accommodate to your needs first then see if you can fit in your wants while allocating money to go into your savings. If this cannot be done, a want can always be moved to the next weekly or monthly budget. You really need to ask yourself, “Is this something I want to go into debt for now or can wait for when I have the money?”

4- How Can I Manage My Purchasing Decisions?

· In order to make smart spending decisions, you need to learn about the value of what you are buying. This can be done by looking at multiple vendors that sell the same product to see which one will give you the most product with the best quality for the lowest price.

· Always be on the lookout for sales and discounts. If you are aware of sales and discounts, you can take advantage of them to stock up on a product at a lower cost rather than continually purchasing it over time at a higher price.

· Manage impulse buying. Sometimes a really great product or service can come out without much initial marketing, which leads to a quick judgment that it is necessary to buy said product or service right away. This is normally not the case. Most products or services can be attained at multiple points in time, therefore it is always smart to curb excitement and wait until you are financially ready to spend the money that the service or product costs. Think to yourself, “Do I want to continue to pay for the past or learn to pay as I go?”

5- What Is the Difference Between Using Cash, Credit, and Debit?

· Cash is very straight forward. You have however much you have, and there is no room to use more than what you have. A smart thing to do is once you get your paycheck, take out a minimum amount of spending money in cash. This will be very effective in cutting down your spending because you will only be able to use what you physically have. Also, you can always take the change (pennies, nickels, dimes, and quarters) and put it in a jar so that it can build up over time and eventually be added to your savings.

· Debit/ATM cards are a bit tricky because while they are connected to your checking account and let you spend the money within that account, they can also be overdrawn—meaning it is possible for it to go negative so that you owe the bank money. A minimum is required by most banks in order for you to have a bank account with them, which is why it is important to try and not overdraw your account. It is best to connect your debit/ATM card to certain accounts you need to pay off, such as a credit card, insurance plan, or car installments. You can make the payments automatic so you don’t have to worry about them being on time and definitively separate your spending money from your saving money. This can also be done by connecting the payments directly to your bank account using your account and routing number.

· Credit is mostly known as a necessary evil and is a personal choice. It is possible to make large purchases without a credit score, however, in order to make certain large purchases, such as a house, car, or apartment credit can be required. It helps companies or owners of establishments evaluate how well you handle your money. Credit card companies give you an allowance of a certain amount of money that you can use at your leisure but must pay off over time. If you miss payments, it will negatively affect your credit—which is shown through a score (a scale that ranges from 0 – 800). The best way to go about using a credit card or cards is by spending only as much as you know you can pay off. You can save it for emergencies so it will be an occasional indulgences or use it for a few things such as a cup of coffee here and there or gas. This method will allow you to fulfill your monthly payments or for you to completely pay off your card so your score remains high and so that you don’t have to dip into your savings to pay off a card.

6- If I Want to Invest My Money, How Do I Invest It Wisely?

· Investing money you want to save is something you should do with caution. Investments are essentially you spending money now so that you can possibly earn money later on depending on who you invest your money in and when you invest it.

· While investing in companies or organizations can be risky, they can also be very rewarding. It all depends on how well you research where your money is going and how it is being used by the company you are investing in.

· Something to bear in mind with investing is that it takes time to accumulate. It can take anywhere from days to years for your money to grow in an investment. In this case, patience and mindfulness are key. If you are saving for something in the far future, it might be smart to make a wise investment to accumulate money without having to add to the amount yourself. Whatever you do, try not to put all your eggs in one basket. Diversity is key.

7- Why Should I Use A Bank and How Do I Choose The Right Bank For Me?

· While it is always an option to save your money at home and keep it under your mattress, using a bank can be a much more efficient and safe way to manage and save your money. They offer both a checking and savings account. A checking account is the one you have access to through your debit/ATM card. A savings account is money that no one can touch except you via online banking or through a teller—making it harder to spend.

· It is very safe. Your money is secure since most banks take several precautions against identity fraud, theft, and risky investments. Also, by using a bank your money is federally insured by the Federal Deposit Insurance Corporation (FDIC), meaning your money is guaranteed to be there.

· In addition, banks pay you interest for banking with them. Banks do this because you entrust them with your money, you enable them with the ability to give loans to those in need. The interest they pay you is compensation for allowing them to do so. This in no way means you are losing money. Banks take several precautions to make sure that the loans they give out will be paid back and that all accounts will continually have the amount each customer has deposited.

· All of this means you should pick a bank that you trust to look after both your spending money and savings money. I am very proud of our employees at NYCB. At the end of the day, generally banks offer very similar services and rates, but it’s the people that make the difference.

So as you can see there are several steps that you can take in order to have more control over your finances and your financial future. While this is a lot of information to take in, it can all be done slowly over time so you are not overwhelmed. Also, keep in mind that slip-ups happen! It won’t be a perfect journey, but if you follow just a few of these helpful tips, managing your money will be a little less stressful.

John Fennell is the Director of Retail Banking at New York Community Bank.  He oversees the operation of the 255 branches in the five states in which the Bank serves the community.

John joined the NYCB family in 1993 as a member of Branch Administration. When John first started there were seven branches of the Bank ad 1.5 billion in deposits.  He has helped to grow NYCB to the current 255 branches and 20 billion in deposits.