Five Things To Think About When Overhauling Your Finances
Taking charge of your personal finances, no matter how poor a state they are in, is one of the best things you can do for your current and future security. Here are six considerations you should make when analyzing your current state of affairs and planning for the future.
1. Where are your immediate priorities? Are they where they should be? If you are making two car payments but can barely pay your rent or mortgage, or if your satellite bill is always paid but your water is shut off occasionally, you should reexamine your financial priorities. Create a hierarchy of bills from most important to least important, and use this ranking to allocate your spending. Your highest priorities should be your home, utilities, food, and a way to get to work. If bills in this category are overdue, tackle them before paying for any non-essential expenses. You may need to sell an extra vehicle, cancel non-essential services, or otherwise trim expenses if you are not meeting your basic needs.
2. What do you hope to achieve with your financial makeover? Perhaps you would like to pay off your debt, or maybe you want to begin a nest egg for a future down payment on a home. Setting goals gives you something concrete towards which you can work. Tuck a slip of paper with your goals in your wallet, or perhaps wrapped around your credit card. Every time you open it to make a purchase, you will be prompted to think about how that latte or video game will impact your plan.
3. How do you plan to manage your money? Balancing a checkbook the old-fashioned way can be effective, but if you pay primarily with plastic or cash, it might not be ideal. Software like Quicken, Mint and others can sync with your bank and credit accounts to track and analyze your spending, help you save, and provide a more detailed look at your current financial state. Many of these programs also have smartphone apps available, making it easy to see how you're doing no matter where you are.
4. How will you handle emergencies? Rather than frittering away bits of extra money you receive, start an emergency savings account. This account can keep you afloat through life's little surprises: blown tires, dead appliances, unexpected lay-offs, injuries, etc. Even putting aside $10 or $20 from every paycheck will give you a little wiggle room when the unexpected happens.
5. Are you saving money for retirement? While it's easy to prioritize current needs over future needs, you really should start saving for retirement now, even if you can only spare a little from each check. If your employer has a 401k matching program, take advantage of it; opportunities to earn free money for the future don't come around often.
6. How can you reduce your overall spending? Once you have started tracking your spending for a while, you will start to notice exactly where you money goes. You may be shocked at how much you spend on fast food, or flabbergasted at the sum of your clothing purchases. Identify these "money leaks," and give yourself a budget for the items you can't live without. For everything else, look for ways to reduce or eliminate your spending. Brew your own coffee instead of hitting the coffee shop, and pack a lunch rather than eating out every day. You will hit your goals much more quickly with the cash you save.
Deciding to overhaul your finances is one of the best decisions you can make. Consider these points as you begin your journey, and enjoy the payoff now and in the future.
