When was the last time you sat down and reviewed your finances? Have you set financial goals? Do you know what you need to do to reach those goals?
Determine Current Financial Situation
In order to be able to improve your finances you first have to know what your situation is currently. This can take a bit of time if you’ve never organized your financial papers before but it will be worth it in the long run. After you have your papers gathered write down every single debt you have either on paper or in a spread sheet. Even if you just owe a friend $20 write it down. For some this will be easy for others it can be scary looking at the list as it grows.
Once you have all of your debt recorded begin to list your assets and a fair market value. Remember market value is not what you paid for it but what you could sell it for today. This doesn’t have to be exact but make sure it is a reasonable estimate. Some things you will be able to know exactly what they’re worth. You should pretty easily be able to look up the balances of your checking, savings, and retirement accounts.
Setting Financial Goals
When paying off debt or saving for a future purchase it is important to know how long it will take you. This can help you know when you will have extra money freed up and also help you decide when buying ‘wants’ if that is worth putting off your goals. One of the things I’ve been working on is eliminating my student loan debt. To do this I pay an extra $200 a month. By tracking my progress and knowing when the debt will be eliminated I am better able to resist temptation.
Another goal I’m working on is building our emergency fund up to 3 months worth of expenses. We were close but had an emergency hospital visit that we had to use some of this money to pay the bill. Currently we have just over a months worth of expenses saved so we are putting extra money into this fund.
It can be hard to balance priorities and determine which goals you should be focusing on; but that is a personal decision you have to make on your own. Something that can help you when figuring out your priorities is to sit down and think about where you want to be 6 months, a year, and 5 years down the road. Are you looking to purchase a new car or home? Will you be having kids and increasing your monthly expenses? Maybe you want to start your own business or retire in the near future . All of these, and many more, are things to consider and need to be thought through sooner rather than later.
Create A Plan
Once you’ve determine what your goals are you need to take steps to make those goals a reality. Even if you only have $10 a month to set aside right now, do it. It’s progress in the correct direction. Every few months evaluate if you can save a little more and before you know it you might be adding $40, $50, $60 or more to your accounts. If you plan to have $40K set aside in 5 years to purchase your first home then you would need to start saving $666.66 each month. If you put off saving for another year you would need to save $833.33 each month. The sooner you start on your goals the easier it will be to achieve them.