Here’s some of the simple things you can do to start taking control of your finances right now:
1. Set Goals. It’s important that you decide what is important to you—now, 5 years from now, and later. Set realistic goals that you are willing to work toward. If you’re in a relationship then make sure that both of you have the same vision of your financial goals. If you don’t, then war is surely on it’s way.
2. Understand the Difference Between Needs and Wants. It’s important that we first spend for needs. This means that money for the rent or mortgage and utilities is a must. Other needs are food and clothing.
Transportation is often a need in order to earn an income. Medical needs are important, too. People never get all the things they want, but unless they pay for needs first, they will usually have serious money problems.
3. Know What You Have to Spend. You can only spend what you take home. If more than one person in a family or household earns money, then you need to know the total amount of take-home pay. This is all you have available for needs, wants, and savings.
4. Know What Goes Out. The only way you’ll know where your money goes is to keep track of how it’s being spent. It’s easy if you start with a calendar and write in the large payments such as insurance.
- Divide yearly expenses by 12 and quarterly expenses by 4 to get the average amount you need to set aside monthly.
- List all payments and contributions you make once a month.
- Estimate the cost of clothing, furnishings, etc., you bought and paid for last year. Divide by 12 to get a monthly estimate.
- Keep track of what you actually spend for food, recreation, and other items for a week. Multiply this by 4 to get a monthly “guesstimate.”
5. Use a Spending Plan. A spending plan can help you get the things you need and want most. I have a budget that I live by which includes how much money I get to spend. If I want something outside that budget, then I need to figure out a way to get that money elsewhere. It’s actually really cool because it means I meed to get creative, which I enjoy.
6. Pay Yourself First. Ten percent of your take-home pay adds up to a sizable amount if it is put into savings and investments. Saving for emergencies such as accident, illness, or unemployment is a real need. Some experts recommend from 3 to 6 months’ take-home income for this. Setting aside money each payday can help you make periodic payments.
7. Use Credit to Your Advantage. The smaller your income the smaller the amount of debt you can afford. Ten to 15 percent of take-home pay going for installment debt (other than a home mortgage) is about all the average income family can afford.
Wise credit use means that you shop for the lowest cost you can find, that you make as large a down payment as possible, and that you pay back as soon as possible.
8. Keep Financial Records. Records can help you manage your money. They tell where your money goes and can help you decide what changes you’d like to make in your spending.
9. Automatically Invest a percentage of your income. Make sure that for every dollar you earn make sure that 5-15% of it is automatically diverted into a higher savings or investment account. This means that you will be less likely to spend it on ‘stuff’ that is not important and makes it hard to manage your money.
If you’re not sure how to go about this, just check with your local bank, or your accountant on the best way to get it setup. This way your money that automatically get placed in an investment account each time you get paid, starts working for you.
10. Increase Your Income. Did you know that your net worth will always be roughly equivalent to your level of self-worth? In other words, how much you trade your time for money is what your settling for in terms of what you believe you deserve to make.
The only difference between people that make $30 per hour and $100,000 per hour is the level of self-worth they have developed around their income. So when you expect more from yourself and start setting the bar in your financial life at higher levels, then financial altitude in life can soar higher and higher.
Far to many people focus on what they don’t have and what’s wrong with their financial lives instead of focusing on a solution to increase their income. I live by the adage that multiple streams of income are a necessary part of life. This means if one stream dries up (i.e. your job) then you are not left hanging out in the wind to dry.
While this may not be everyone’s cup of tea, it sure beats suffering the stress and pressure that comes when the only income stream you have disappears. The fact is that there are no certainties in life but we can put ourselves into the best possible situation so that we can weather any storms in more comfort.
So rather than just think about how you can optimize your one income stream, spend some time planning out what else you could be doing to leverage your time, money or skills to develop other income streams.
Most of all, true wealth comes from what you give. not what you get. As any successful entrepreneur knows, if you learn how to build more value in the marketplace for what you do, or what you offer, then that’s when the financial floodgates will open.