While often portrayed as the richest country in the world, the United States isn’t even in the top ten according to Global Finance magazine. What’s more, this is just one of many financial myths into which we’ve bought over the years.
Another one is your financial problems will be a thing of the past if you make more money. While this does indeed have the potential to be true, the reality is if you make more money and succumb to lifestyle inflation, you’ll still have financial problems. You must become adept at managing your money — so money doesn’t manage you — if you want to experience financial freedom.
Here’s how to do it.
Create a Spending Plan
Look at what you earn compared to your monthly expenses. Make a list of all of your financial obligations. List to whom they’re owed, how much they run each month and the interest rate they require. This will give you a clear picture of where you are and it will help you devise a plan to better your situation.
Make sure the plan includes dollars for entertainment, as well as savings and investments for the future. Don’t be alarmed if you don’t have enough to cover the savings and investments — yet. You will.
Some of those expenses, such as food, clothing, shelter and transportation are overhead costs that won’t go away. However, credit cards, charge accounts and other self-imposed debts can be eliminated. Apply the snowball strategy to eliminate your debts by working on them in order from smallest to largest (while paying the minimum on all). This will free up the money you’ll need to build your future.
If things have already spun out of control and you’re struggling to make the minimum payments on your debts while also paying for basic necessities, you’ll need to institute immediate measures. Consulting a company like Freedom Debt Relief to examine your situation and determine if you’re a potential candidate for debt settlement is one avenue to explore.
Limit your purchases to items you absolutely need to carry on with your life or improve your employment prospects. Leave your credit cards at home. Use a debit card to shop online. The idea is to pay for things as you get them, rather than charging them and paying interest too.
Log Your Expenditures
The only way you can be certain you’re sticking to your sending plan is to keep track of the money you spend. Keep all of your receipts and, at the end of each month, categorize them, total them and see how you did. Maintain a log so you can measure your progress. This will also help you stay on track and provide psychological momentum to remain diligent.
Create an Emergency Fund
Start saving an emergency fund as soon as possible. Your target should be six to 12 months of living expenses. You can then pay cash if something major needs a repair, rather than charging it.
If the cost is greater than your savings, at least this will minimize the amount of the loan you’ll need.
You’ll also be covered if your company folds or you get laid off.
Shop Carefully/Buy Used/Pay Cash
The internet gives you the ability to comparison shop with ease. This makes it easy to find the best price and the best terms.
Now, with that said, when it comes to durable goods such as washers, dryers, refrigerators and TV sets, give more credence to quality than price. In other words, look for the best deals you can get on the highest quality you can afford. You’ll come out ahead in the long run with this approach.
Further, there’s no shame in the used game. You’ll get better quality at a lower price, which will give you more cash to save toward paying off bills, creating your emergency fund and saving for the future.
The goal is to pay cash for everything, even if it means saving up to buy it, or putting it on layaway. If you must charge something, make every effort to pay it off in full before the grace period runs out and interest is applied to the purchase.
Save Your Money
Make a habit of regularly adding money to your savings and/or investment accounts. If you get a raise, put it away while you’re still used to living on less. Ditto tax refunds, inheritances and other windfalls.
You’ll only get good at managing your money so money doesn’t manage you if take action. Always keep your eye on that goal. After all, the decisions you make today will absolutely determine the way you’ll live tomorrow.