Money Matters and Your Personal Finances
How you manage your personal finances can have a huge bearing on the way you live your life, with debt-free individuals having more choices and freedom than people buried underneath a mountain of debt. To reach your goals you must begin by establishing a firm foundation, one that can help you put a sound financial plan in place.
Establish a budget
Review your spending over the past three months including your monthly mortgage or rent payments, credit card bills, utilities, insurance, food, personal care and your out-of-pocket expenses. Compare what you spend to your income including your take home pay, interest received, pensions and other sources of income. If your expenses are greater than your income, you will need to work toward balancing the two.
Review your expenses
Examine your monthly expenses to determine where your costs can be reduced. For instance, if you buy your coffee outside of the home every day, then purchase a coffeemaker and make your own. Instead of buying your lunch while at work, brown bag your meal. Look at other ways that you spend money on incidentals and cut these back or eliminate them entirely.
Bundle your costs
Further savings can be realized if you combine some of your expenses to one account. For example, if you have telephone, Internet and cable accounts, then have one utility company provide these services. Bundled services result in cost savings, enabling you to reduce your expenses without cutting out anything. You can apply bundling to your insurance needs as well. For instance, if your homeowner’s and auto insurance coverage is from two different insurers, you can enjoy a discount by combining your insurance plans to one carrier.
Attack your debt
Credit cards, personal loans and other debt can drain your finances. Make a plan to pay your debt down quickly. If you have multiple open accounts, avoid adding to your debt. Work toward paying off your smallest debt first, by contributing large sums each month while making the minimum payments on your other debt. Once you pay off your smallest debt, then move to your next larger debt. Keep moving through this process until your debt has been eliminated, what money professionals such as Dave Ramsey call the debt snowball method.
Develop a savings plan
Pay off your credit card debt before starting a savings plan. Debt interest rates are higher than savings rates, therefore credit eradication takes precedence over wealth building. Once you have your credit under control, you can build a savings plan that will allow you to save money for short- and long-term goals. Contribute money to your retirement fund. Have money automatically taken out of your paycheck and deposited into a savings account. Work with a financial advisor to develop a customized money strategy to reach specific goals including your retirement, college savings, a new car or other goal.
Consider that managing money is not your strength. Ask your spouse or partner for assistance or seek help from a financial expert to develop a budget. Your ultimate goal is to find a successful formula, one that can help you get your personal finances under your control.
See Also — 7 Ways to Save Money at College