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7 Steps to Get Your Personal Finances in Shape

Wednesday, January 06, 2016

 

Practicing fiscal fitness is a little like going to the gym to get your body in better shape. You have to be committed, establish a routine, and track your progress. If you are determined to save more this year, now's a good time to evaluate your household finances and find out where you're wasting your hard earned dollars. These seven steps will get you on the road to becoming more fiscally fit.

1.Know how much you make. Most folks know how much money they make. But people can get sidetracked by looking at the revenue rather than the profit. It's the profit that counts, the actual earnings that make it into your personal pocketbook.

2. Know how much you spend. Wonder where all your money goes? Then you don't know how much you're spending. And that lack of knowledge can kill your finances. To keep a handle on spending, plan for it. Call it a budget or a spending plan, but whatever you label it, it doesn't have to be complicated. Start by listing your 'must pay' monthly bills like:

    • Mortgage or rent payment
    • Home and vehicle insurance
    • Utilities
    • Groceries and household goods
    • Child care
    • Vehicle loans
    • Gasoline and vehicle maintenance
    • Payments on credit card balances
    • School tuition (or student loans)
    • Clothing
    • Vet bills for Fido
    • Estimated taxes if you are self-employed

    Next, list your "like to have" monthly expenses.

    • Entertainment
    • Eating out
    • Travel and vacations

3. Do the math. Add up everything that you are spending. Subtract your monthly spending from your monthly income. How does it look? Do you have enough money left over to build a family emergency fund? Enough to contribute to your retirement plan? Enough to start saving for a big expenditure in the near future?

4. Pay off your debts. Devise a plan to get rid of your debts. You'll never get ahead financially if you're paying interest charges on credit card balances, student loans, or other consumer debt.

5. Build an emergency fund. Setting aside some money for financial emergencies is a wise move. If your water heater springs a leak, you'll have cash ready for a repair or replacement. And you won't have to incur more debt by putting the expense on a credit card. The rule of thumb is to have three to six months worth of living expenses in your emergency fund. A large family may need more. A single person with fewer financial commitments may need less. Keep your emergency money in a safe investment that's easy for you to access. Money market accounts or savings accounts are good options.

6. Save for major expenditures. Major expenditures hit every household. Maybe you need a down payment on a new home. Perhaps you are planning for a child's education. Whatever is on your future wish list, start saving now. This money should not be part of your emergency fund or your retirement fund. Earmark a certain amount of your monthly household income for each major expenditure you expect to make in the future. Make this savings a part of your budget, just like groceries and gasoline, and you'll be more likely to reach your goal.

7. Save for retirement. Your golden years will be tarnished if you don't save for retirement now. No matter what your age, put together a retirement plan and start funneling money in to a retirement account. There are options that range from traditional IRAs to plans specifically designed for the self-employed. Educate yourself. Make decisions. And make the commitment to save.