M is for Money

Personal finance isn’t rocket science or brain surgery, it is not beyond the comprehension of the average American. Yet many people plead financial ignorance and don’t bother trying to improve their financial standing. The fact is financial success doesn’t happen overnight. Every person with a million dollar net worth had to start somewhere and chances are they were as lost as you in the beginning. The first steps are of course the hardest, breaking from years of habit doesn’t happen instantly. But it doesn’t have to be hard either - here are a few simple ways that anyone can start improving their finances today.

1) Check Your Credit Report
2) Sign up for Online Banking
3) Save before you Spend
4) Build an Emergency Fund
5) Start a 401k or IRA
6) Make a Net Worth Statement
7) Set Clear Financial Goals
8) Track Spending for a Month
9) Trim the Fat
10) Develop a Budget

Check Your Credit Report

Credit has far reaching effects on your daily life – the interest you pay on loans, the cost to insure your car and even your ability to get a job all depend on how good your credit is. It’s easy and FREE to check your credit report, simply go to annualcreditreport.com and pull your report from one of the three credit agencies. Make sure it is accurate and that you haven’t been the victim of identity theft. If you’ve got past blemishes then make the commitment to pay on time every time, simply improving your credit score will save you money.

Sign up for Online Banking

Why wait for a monthly statement when you can have free, instant access to your account information. Curious if that check to grandma cleared or if your rebate has been deposited – logging on will give you the information you need to stay on top of your money.

Save before you Spend

Set aside money in your paycheck as soon as you receive it, not at the end of the month after you’ve spent all you have. By making saving a priority, not an afterthought, you’ll be on the path to financial solvency. Set up an automatic transfer from your paycheck or checking account to savings. It’s the Ron Popeil method of financial success – set it and forget it!

Build an Emergency Fund

Saving money is a habit like any other, but habits don’t form themselves. Start with setting aside $40 from each and every paycheck. For those paid every two weeks this simple habit will give you a $1000 emergency fund in 1 year’s time.

Start a 401k or IRA

Tax advantaged accounts like 401ks and IRAs give you a relatively painfree introduction to investing. The money you invest is taken out pre-tax, lowering the amount of income you are taxed on. This means you are saving more money than the reduction in your paycheck, magnifying the benefits. Also your employer may provide matching funds to help grow that balance.

Make a Net Worth Statement

You can’t give directions to a location without knowing where you are starting from. What is your net worth right now? Make a list of all your assets – savings, retirement, investments and such. Then make a list of all your debts – student loans, credit cards and other loans. Now you have a clear idea of where you currently stand. Do your debts dwarf your assets? Hopefully seeing the sheer size of your debts will help motivate you to pay them off.

Set Clear Financial Goals

You know where you stand, but where do you really want to be? Research shows that simply setting goals and writing them down increases the odds you’ll actually achieve those goals. Look ahead and make financial milestones for the next year and the next 5, 10 and even 20 years. Worry about how to get there later, for now focus on appropriate goals for each timeframe. Starting an emergency fund and paying down debt are great goals for the coming year, not for year 20!

Track Spending for a Month

The simple task of tracking your spending for a month is both eye opening and illuminating. Few people know how much they really spend on fast food or clothing or other “expendables” each month. Taking financial control means understanding where your money is going.

Trim the Fat

After tracking your spending for a month you will have an idea where you can cut back. Unused monthly memberships, bloated cell phone plans and buying convenience food – at significant mark up – all come to mind.

Develop a Budget

I know many financial “experts” do not keep a budget, but they also don’t have a problem with their finances! Budgeting is what helps me work towards my goals, all I have to do is follow my budget and everything will work out fine. I have many tips on how to make a budget that works for you.

Make the Commitment for Better Finances

Do you want to stop living paycheck to paycheck, stop worrying about your financial security? Try one or all of these simple steps and take charge of your money.

Photo: Darren Hester

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