In dealing with today’s headlines about the worst financial crisis since the Great Depression, it can be a bit unnerving to think about the pain that has already happened and the road ahead. Between the US economy loosing 1.2 million jobs over the last ten months and the stock markets falling over 30% from their peak, the light at the end of the tunnel seems to be non-existent. Or is it?
The road ahead will no doubt be hard, but times like these help all of us learn the essentials of personal finance. The ideas below are not exhaustive, but should act as a guide to help you prepare for your financial future.
Getting Organized
In my opinion, the most important part of personal finance is to be organized. Every time I read another personal finance book, this is the first and most critical lesson. Organization can come in many forms but usually follows a particular path.
First, you will need to know where you are in order to know where you are going. I have included a list of questions that you can answer to help you get organized.
- How much money is coming in every month?
- How much are your monthly expenses?
- How much cash do you have?
- Do you have any savings?
- How much debt do you owe?
- Do you have any retirement accounts?
Once you have this information, you are halfway there.
Second, it is my belief that while you may know what your bills are, there are always more, mostly variable costs that accompany our daily routines. To have a better understanding of these costs, I recommend that you keep track of all your expenses for at least 30 days. This should be enough time to see patterns of behavior from week to week and to help you see the true total of all the expenses in your life.
Set your Financial Goals
Once you have a clear picture of where you are, you can now take steps to better your financial outlook. The first step towards this is to set goals. Whether you would like to have extra money at the end of the month or you want to pay off those high interest credit cards, setting achievable goals is the smart move. To set those goals, try the following to help you get started.
- Be realistic. Don’t try to set goals that you know you cannot obtain. If you are spending more than you are taking in, then set a goal to become cash flow positive.
- Always plan for the unknown. If you have extra money in your budget, create an extra expense called unknown. This will help ease the tension when there are unknown expenses during the month.
- Don’t deprive yourself. If you love to shop for new clothes, then leave some room in your budget to buy a few things during the month. This way, when you do spend the money, you can feel good knowing you stayed within your budget.
Cut Unnecessary Spending
In order to reduce spending, try the following.
- Cook! By planning your meals and preparing them, not only will you eat healthier but you will save money.
- If you like going to the movies, rent a movie or go to the dollar theater.
- Make your own coffee. If you buy coffee everyday before work, this can easily add up to hundreds of dollars a month.
- Find it on Ebay or Craigslist. By buying items from these sites, you can potentially save huge amounts off of retail prices.
Stash some Cash
Once you have seen how much money you can save on variable expenses, plan to put some of that money away in a savings account. It is recommended that you have at least 6 to 8 months of expenses saved up. Now, you might think “That is a huge amount of money!”. The key here is to at least start saving a certain amount every paycheck. It may not add up at first, but over time the regular payments will definitely start to add up.
Create more Income
If you are still feeling the pinch of the economic times, then maybe you should try to create more income. You can pick up an extra part-time job, try to do something you love to make money at, sell some of your possessions or try any number of other ideas to help create the money needed to keep your family above water.
Pay Down Debt
If you still have your job and are in a financially sound place with your savings, then paying off debt is a definite must. The burden that can be placed on a family because of debt can be enormous. To start your plan for paying off debt, I would recommend using debt goal. Enter in your information and follow the steps listed in the site to help you with your repayment plan.
James Gibson
