Here are ten steps to keep you feeling positive about your finances, even if you have been derailed.
Here in Texas, we are still trying to bounce back from Hurricane Harvey. We have seen massive destruction and returned to a more basic state of mind. We have recalled what is most important to us. One thing we cannot escape, we must be able to afford a way of life that is positive and stable. Even when disaster strikes, and we are not thinking clearly, we need a way to remind ourselves what we need to do. Life goes on, and we must accept what we have been dealt and find a way through it. These steps can see you through the worst of times but in ordinary times as well. Keep them as a reminder for yourself and look at each of them at least twice a year.
1) Know what you are spending. This is the most important thing you need to know when you are feeling stressed about money. Take a deep breath and look at your last 3-6 months of spending. You might be surprised where your money is going. I review our family’s spending every 6 months (consider every 3 months if your income or expenses are changing frequently).
2) Pinpoint what you can trim. We, recently, were feeling tighter with our cash flow and I could see that our grocery bill had been steadily increasing over the last several months. By looking at all our expenses we could rein it back in and limit the impulse buys and excesses that have gotten out of control (I blame the kids! 😉).
During this most recent review, I also noticed our homeowner’s insurance was coming due, so I decided to review it. The new premium seemed higher than I remember. I shopped around and determined we were quite a bit OVER insured. I obtained sufficient new coverage and reduce my bill by $1,661 or $138 a month! Insurance and longer-term commitments, like phone and cable, you should try to review them at least once a year. Talk to your insurance agents and have them go through your policies one item at a time. Keep in mind, having more than one type of insurance, such as car and home, with the same company will make you eligible for discounts. Discuss your preferences with your agents and service providers for cable and phone; you will be surprised that you can get adequate service or coverage without overdoing it.
3) Develop your personal income statements and balance sheets. Income statements help you view your income and expenses (both fixed and variable) and determine what discretionary income you may have each month. It will also help you determine what emergency savings you should have. Balance sheets help you see your assets and liabilities/debts side by side. It reminds you to stay focused on your ASSETS! Update these each year…legal business entities do this each year, and even if you do not own one, your personal financial situation IS your most important “business.” Here is a LINK TO A SPREADSHEET that has both a template in tab 1 for your personal income statement and a template in tab 2 for your personal balance sheet (now updated to include tab 3 for goal planning).
4) Set goals for yourself. Keep your eye on long-term goals like retirement and education, but also set short-term goals for yourself. Maybe a vacation, a furniture purchase or a new car. Retirement savings comes first, but it is important that you find ways to reward yourself. Why would anyone want to wait until they are retired to have fun? If you have a plan and are willing to sacrifice in one area, you can give yourself small rewards and have fun living life! Know your boundaries, and remember you are not entitled to a reward. You must make it possible by reducing an expense or increasing your income. You will not stay committed to your budget if you are not finding ways to reward yourself for hard work.
5) Make extra money. If you are finding yourself worried every month or living paycheck to paycheck, it is time to really think about how to make more money. Be honest with yourself if you can reduce expenses. If you cannot, or simply don’t want to, then your only other option is to make more money! You know this answer, but you must push yourself to do it. There are so many ways to make extra money today while you have a full-time job too. Many internet options are available, online marketing or surveys for example. Consider all your current employment options. Maybe, it is time to talk with your boss, if you are doing a good job, but haven’t gotten a raise in a while. Maybe, it is time to look at other employers or consider making a career change. It is hard, no doubt, but you must not be afraid to ask for help from your support system, when needed if you are committed to getting on track and trying to live a stress-free, guilt-free, financial life. YOU CAN DO IT! Make the commitment to yourself, you deserve it!
6) Eliminate consumer debt. Now that you’ve seen where you can reduce expenses, and where you may be able to add income, it is time to tackle consumer debt…those nasty credit cards. I am not someone who is afraid of debt for asset purchases or even student loans, but when it is used as an emergency fund or to reward yourself without sacrificing something else then it is not ok. It only gets you into trouble. Being patient is becoming harder these days, we want what we want now, but ask yourself it if it is worth undue stress and possibly financial ruin later. Maxing out your credit cards can take years to bounce back from.
If you already have a lot of debt, don’t worry, but you must get a plan together so you can start to get ahead. What’s done is done, learn from it and move forward. You may have heard of the debt snowball from Dave Ramsey. This is focusing on paying off your smallest debts first while making minimum payments to your other debt. Once the first small debt is paid off commit that payment plus the minimum to the next debt. Once those 2 debts are paid commit those 2 payments plus the minimum to the 3rd etc… You will start to feel free and less trapped by debt using this method. Get started today. Be patient with yourself. Get your income and expenses ironed out, and commit to avoid using credit cards for the wrong reasons.
7) Create your emergency plans. We have all heard of having an emergency fund. I am guilty of having an emergency fund that dwindled and having to turn to credit cards when I had some big expenses that I didn’t plan for. We make mistakes, but it is important to learn from them. Don’t keep repeating them. Having 3-6 months of “must have” expenses is crucial to avoiding financial stress. If you have an unplanned expense, use the money, but build it back as quickly as you can. If you have had to use a credit card, it is OK, but use the debt snowball method to get rid of it.
8) Save for freedom. You should think about your future and your retirement…in a perfect world it is an early retirement 😉 (why not go for it!). Save up to the employer match in your company retirement plan. This will save you on income taxes now. If you don’t have a company plan, invest in an IRA to delay paying taxes on the investment growth now and your contribution may be deductible. Save something each month, otherwise known as paying yourself first. Typically, there are mutual funds within a company retirement plan, like a 401(k), but IRAs can have a variety of investments. Look for a reliable research analyst or online tool. Consider a financial consultant to help you, but really commit to understanding what you are buying. Don’t just trust the options suggested to you, ask lots of questions. This is your money and you will pay a fee somewhere along the line! Build your confidence. Start simple and when you grow your assets, you can add more complex investment options.
9) Begin a passive income strategy. Increasing the number of assets on your balance sheet is important, but not assets like your primary home or a car. Focus on assets that will increase in value and pay you some type of dividend or income. Assets like a business, real estate investments, commodities, art or precious metals can help you create an income stream and financial security. It does take money to make these types of investments so start small and get some experience. Grow your income from assets and you can feel the utmost security. There is no reason why you can’t, the previous 8 steps will lead you down this path. Stay focused on this goal.
10) Never stop learning, educate yourself! Surround yourself with people who have a lot of assets that produce income. Learn from them and ask questions. The best way to do this is to take a seminar related to something that interests you, maybe a new business or real estate club. Begin soaking up knowledge of all types. Never get overconfident in your knowledge, you can always learn more. Knowledge is KEY!
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