Personal Finance – Page 9 – Financial Memos

With the global economy still struggling, some of us are running short of cash before pay-day arrives. However, there is hope. Until the economy fully recovers so we can all return to prosperity, it is up to each one of us to keep our finances in order. We'll go through four simple steps you can take to manage your money better. All we need to do is plan our budget a little more carefully. We need to avoid the traps and pitfalls that drive us further into debt and hold on until the day comes when we no longer have to watch every penny. Here are four simple things you can do to get a firmer hold on your finances. By taking note of these simple hints, you should be able to bring your debt under control and, with a bit of luck and a little hard work, even find you have a little leftover to save for a rainy day until the next paycheck arrives. Bring Your Payments Under Control The quickest and simplest first step we can all take to manage our money better is to look at our spending. Take a look at a few recent bank statements. What do you see? If you see any charges for exceeding your overdraft or bouncing a bill payment, you may have a problem with cash flow, and this is the first problem that must deal with above all others. Bank charges can take a real toll on your finances, especially when you find you're paying them more than once every few months. If you're struggling to cover the bill payments, you might want to consider speaking to your bank about temporarily extending your overdraft. It's not usually a good idea to tempt you deeper into debt, but an emergency buffer might help avoid those punitive late payment penalties and help you rein in your debt in the long run. Consolidate Your Existing Debts Similarly, suppose you're finding it challenging to cover the minimum payments on multiple credit cards each month. In that case, many people find it helpful to consolidate their debt into a single loan. Debt consolidation companies specialise in offering loans to people struggling with their repayments, and they may even be able to help you if you have poor credit. The trick here, however, is to make sure you don't dig yourself deeper into debt. Look for a debt consolidation loan that offers a reasonable interest rate and manageable payments, and make an effort to pay more than the minimum repayment each month. The sooner you clear your debt, the sooner you'll be able to find your footing. This is not an approach that our friend Dave Ramsey recommends and one we didn't follow on our road to financial freedom. However, We can see its uses, but be careful. As Dave likes to mentions, if you play with snakes (debt), one of them will bite you one day. The approach we did follow and the one Dave recommends is the debt snowball. List your debts in order, smallest to largest, and start paying them off as fast as possible. Start at the top and work your way down. It's not about the maths (i.e. the interest rates); it's about the motivation to get this thing done. We have a whole article on this you might like to have a look at. Wipe Out Unnecessary Expenses All too many people complain that they don't have enough to cover their bills while sipping a $5 coffee in their local Starbucks. $5 may not seem like much, but a cup of joe five days a week adds up to a little over $100 each month. When they look into their expenses, most people find that a surprising amount of their money goes towards little things like a morning coffee, snacks, gas for unnecessary trips, and similar small, easy to ignore expenses. Now, nobody expects you to completely change your life and watch every penny like a hawk, but if you spend just a week each month denying yourself these little extras, you'll find you have a heck of a lot of money left in your pocket. In our opinion, having control over your spending is critical to any success with how you manage your money. Don't underestimate its power. If you would like to read some more suggestions on expenditures, we have an article which might be helpful. If you would like some of your top tips on spending on groceries, in particular, check what we have tried here. We also have another article on spending that is written for those who are in problem debt. Make a Budget Finally, the best thing you can do to manage your money better is to put everything down on paper. Make a sensible budget - allowing for both the essentials and the occasional treat - and stick to it like glue. Reassess your budget each month. Have you underestimated the cost of gas? Have you overestimated the cost of lunch every day? Adjust the budget until you find the sweet spot. It's never fun to sweat over your finances, but as depressing as it can be to put a padlock on your wallet, it's the people who think carefully about their outgoings who end up in the best financial position. With a little common sense and a little awareness of where your money is going, you can join them in financial stability. If you want to know how to manage your money better, we can help with four top tips to get you started on your lifelong path to financial freedom. Our Final Thought Managing your finances better is a lifetime journey. It's not a race. You set the pace, the goals, and what success will look like. But a critical component for anyone on this path is improving their financial knowledge and literacy. We have worked on this component more and more through the years and found it a huge help in putting us on the right track. We have a few suggestions if this is something you would like to look into more.