Whether you are a business CEO or a young person just out of college it is important from time to time to revisit the basics. As someone once said: “Common sense is not so common”. Throughout the world and yes especially here in the United States millions of people struggle with financial challenges. The interesting and promising fact is that most of these challenges are easily solved and even avoidable.
Taking a few basic steps to seize control of your finances is not only possible but also, in most cases, easy. By taking personal ownership of your financial situation is one of the first steps toward easing stress, building wealth and also one of the major elements of happiness. While finance is not everything we need it impacts so many areas that are important to happiness including affecting our stress, health and sense of wellbeing including our relationships with those we love.
Incidentally: for those executives, entrepreneurs and CEOs reading this, these basics apply to running a financially successful business as well.
Here is your opportunity to take a few minutes and do a mental reset. Clear your mind of all other things as this could very well be some of the most important information that you absorb today, this week or even this month. With the holiday season fast approaching it is useful to think on these things to avoid the pitfalls that so many succumb to and suffer throughout the new year because of.
TIPS FOR SEIZING CONTROL OF YOUR FINANCES
Review and follow your monthly spending
- Do you know how much you are spending on items such as housing, food, utilities, clothing and beyond the basics… entertainment?
- Track the total of all categories of spending at the end of the month. No matter the payment method (PayPal®, Debit, Credit, Check or Cash) these should all be recorded to give you a global picture of your expenses.
Create and follow a budget
- Two out of every three people do not use a budget. No wonder they are suffering financially. This simple tool could cure around 90% of all financial problems. You don’t necessarily need MORE money. Rather you need to learn to use the money you have better. Studies show that people in a full range of income levels suffer financial struggles. How can this be if they higher paid people have more money? Simply because they did not stick to this basic principle.
- Use the information you have gained from your expense review to create budget. This must be REALISTIC and based upon facts and data.
- Be disciplined and stick to your budget. Remember that just because something is on sale does not mean you are saving money. Remember that after the purchase of that inexpensive item your bank account has been drained by the exact amount of that “On Sale” purchase.
One area that is sorely neglected in America is the Rainy Day fund.
- Ever had too much month at the end of your money due to some unexpected expense or emergency? The Rainy Day fund is intended to provide for these unforeseen expenses.
- You simply MUST put this in your budget to deduct consistently every payday.
- The same with found money (money you did not expect to have such as gifts). Take 10% and spend it on yourself and the remainder goes into your savings account/Rainy Day Fund.
- In the best cases your goal should be to put 10% of your earnings into savings. However, if you have found this to be impossible due to your debt structure then take care of the debt first and put at least something away for the emergencies that come up. After you have a better control over your cash flow then be disciplined to plan and execute an increase in your deposits to your Rainy Day fund. (Stay tuned to Surpass Magazine for future articles on managing your debt structure.)
Don’t incur extra expenses in the form of late charges.
- You are already paying out enough. Why create additional expenses when you don’t have to.
- During the budgeting process develop a calendar with the due date of all of your bills. Ensure that you make payments in time for them to arrive and be processed prior to the due date. This avoids the fees. Best case… Pay them when they hit the mailbox or inbox. Remember that late payments damage your credit score and future not just your wallet immediately.
Take a look at your credit report.
- Annually you can get a copy of your credit report for FREE at annualcreditreport.com. We recommend that you get a copy from one of the three major credit reporting agencies every 4 months. This way you can rotate through them to be updated regularly while still obtaining them for free on the website.
- The information in these reports is critical to know and understand. The effect on your future and on your ability to even get a job in some cases can be affected by this information. Be sure to check for errors and to dispute any you find as quickly as possible.
Take a look at your credit score
- Your credit score is a three-digit number between 500 and 850 representing how good you are at managing your finances and in particular the debt structure that you have developed for yourself. It is used by lenders and creditors to determine how best to deal with you and at what level of risk you are presenting to them when doing business.
- The higher the credit score number is then the better the opportunity you have for gaining credit and lower finance rates.
- Your score is available to you at a small cost from the same credit reporting agencies that will provide you with your credit report.
- Remember that a credit report and a credit score are two entirely different things. The credit report is a detailed review of your credit history including almost all debts you have. A credit score is simply a summarized number used to give a 30,000-foot view of your credit report.
Get rid of your supplemental debt such as credit cards.
- A credit card can be a great tool but all too often it is the card holders’ worst nightmare. In undisciplined hands it makes it easy to finance lifestyles beyond the means of the holder with a “just pay it off later” mentality.
- Remember that just paying the minimum and accruing the finance charges creates a situation where the buyer pays 3, 4, 5, 10 or more times the amount of the original purchase while being burdened with a monthly drop in income because it is being used to service this debt.
- Lay off the cards. Just simply STOP then pay off the debt you have accumulated on them. (Keep an eye out for an upcoming article dealing with credit card debt for some helpful tips on how to accomplish this.) There is a time and place for credit cards as a useful tool. But if you are having challenges managing your money then this is not the time and place for them.
- Debt is not an evil thing if used correctly and minimally. Most people cannot pay cash for a house for instance or to obtain a higher education leading to higher financial opportunity. Exercising this type of debt plan is directly aimed at improving your future financial wellbeing as paying rent is adding nothing to your pocket from month to month for example.
Grab that FREE additional income.
- If there is a 401k with matching funds from your employer you are crazy not to get in on this. First you get to sock away some of your money for your future and save on the taxes connected with it while at the same time getting to essentially get FREE MONEY from your employer.
- A 401k or similar program is not that complicated but you should know that there is a limit on how much the boss puts in. You should at least contribute enough to reach the maximum match that your employer will put in.
- Some employers match your Heath Savings Account (HSA) that you can use to pay for medical related items that your health insurance does not cover. Once again… if your employer will match any funds you deposit into any of these types of accounts then grab it…. It’s FREE.
Take a serious review of your insurance situation
- How would you or your family be affected by your death, significant illness, short or long term disability or the loss of your home or transportation suddenly? You simply MUST have insurance to cover these things. It is not really an option for the financially responsible individual.
- For life insurance 95% of individuals only need inexpensive Term Life. (Whole Life should never be used as an investment. It only has advantages for the super wealthy.) The rule of thumb for how much life insurance you need depends upon your specific situation but if you are married with children then at least 5 times your annual salary. You should have enough to pay off all personal debt and for your final expenses (funeral) if you are single.
- Do not choose a company simply because they have the lowest rates. Insurance companies are rated based upon their financial strength. At minimum an insurance provider should be rated A+ or wall away and we recommend only going with providers that are rated A++.
- First off we recommend using a Credit Union over a Bank. However, if you must use a bank then choose a more local bank and not one of the mega-banks. You will get better service and can establish a relationship with your personal banker that you will not find in the big banks.
- Make sure that the bank is FDIC insured or the credit union is insured by the FCUA. This protects your money on deposit if the institution fails.
We recommend a Credit Union over a Bank because Credit Unions are owned by the members (you and I as depositors) and are incentivized to offer the best rates both in lending and interest on accounts. Banks are for-profit entities and thus tend to charge more and pay less.
- None of the organizations are the same so do not choose one simply because it is the closest to your home or work. Do your homework to compare the rates offered and get the best deal you can.
- Remember that if they are insured as above then your money is safe and you simply need a good relationship and the best rates to make your experience work for you.