Take control of your finances one step at a time.
The inflatable snowman has been packed away, the last of the fruitcake gobbled. Now all that’s left are the incoming bills that financed your very happy holidays.
Discouraged by your financial state of affairs, you make a resolution to do better with your money. But the best of intentions aren’t going to get you where you want to be. What you need is a sensible plan with realistic goals that fits your current budget.
Gathering financial data and developing complicated investment strategies may not be your idea of fun. But the time you invest in creating a personal financial plan will pay off with big dividends. And it’s really not all that difficult to do. The hard part is sticking with it. You don’t want this promise to yourself to go the way of most New Year’s resolutions and be forgotten in a month or two.
To avoid that fate, take control of your finances one step at a time. The first order of business is to decide exactly what you want to do with your money. Your goals can be short term (accomplished in one year or less) or long term (accomplished in several years) or a combination of both. Whatever objectives you set, they need to be measurable. It’s not enough to simply resolve to be rich.
YOUR GOALS COULD INCLUDE:
- Setting up a savings account for your child’s education
- Establishing an emergency account to cover expenses should you experience a reduction in income.
- Reducing your monthly expenses.
- Purchasing a home.
- Saving more for retirement.
Next, assess your current financial situation Make a list of what you own and what you owe. Next, take a look at your income versus your expenses. If you’re handy with a computer, you may want to use one of the many financial programs now on the market. By doing so, you can download much of this information electronically making the process easier and quicker.
Once you’ve created your personal balance sheet and income statement, it’s time to analyze your finances. What kind of assets do you have? Do they generate income? Are they appreciating in value or are they assets that are nice to have, but don’t improve your standard of living?
Now turn your attention to the debt or liability side of your finances. Compare that with your assets. How they stack up against each other will determine your net worth. The lower your debt relative to your assets, the greater your net worth.
Your income statement also needs to be reviewed to determine where your money is actually going. Are you putting it toward an asset that is growing in value or will provide you with an income stream when you retire, or are you using it to pay the interest on your credit cards?
Bottom line, you want to own more than you owe and earn more than you pay out. If the math isn’t in your favor, start making changes in your life to turn things around.
You’ve come this far. Time to take the next step - develop a plan. As you begin the process, you may find that some of your goals are competing for the same dollars. Don’t toss out your goals, prioritize them. Decide which objectives you want to meet first.
YOU MAY ALSO WANT TO CONSIDER:
- Maintaining the equivalent of three to six months of expenses in a savings account for emergency use.
- Setting a savings goal of 15 percent of your gross income.
- Keeping your house payments down to 25 to 28 percent of your monthly gross income.
- Reducing your debt payments, including your mortgage, to 33 to 38 percent of your gross monthly income.
You’ve got your plan. Now implement it. Be sure to review it periodically as your financial situation changes, and adjust it as necessary.
Setting goals and following a plan isn’t going to get you rich quick. But you’ll be well on your way to improving your finances, ensuring many happy holidays to come.
