Managing Your Personal Finances

Taking control of your personal finances can be a pretty daunting task because there is much to consider. However, there are many effective ways to get a firm grip on your financial situation. You can begin by dedicating one day out of your life as your ‘Personal Finances Day’. Use this day to focus on nothing but planning and organizing a sound financial strategy for your future.

Far too many people allow their personal finances to take control of them, and the situation only worsens when the economy is declining.  Simply taking the time to get a proper handle on exactly how much is coming in and out of your bank account each month, how much you owe and how much you have saved will leave you in a much better position to sort out your finances and plan for the future.

Taking control of your finances requires dedication and determination. If you are not fully committed, you will not achieve your goals. If you are really serious about getting hold of your finances, read on. With a few simple steps you will be able to take full control of your financial situation:

Work out your true net worth.

You cannot take control of your finances before you know what your family’s current financial situation is. Calculating your net worth is essentially very easy to do – basically it is a grand total of all your assets (what you own), minus your liabilities (what you owe). So, write down everything you own such as the current value of your home if you own it, the balance in your bank accounts, the value of your vehicles, jewellery, investments, insurance, retirement savings, etc. Next, work out your liabilities – amount left to pay on your mortgage, loans and total amount owed on your credit cards. Total up your assets and subtract the liabilities from the total assets and you’ll have your net worth.

Keep track of every penny you earn and spend.

You need to have a clear picture of what your family’s total monthly income is. How much money do you and your spouse, if you have one, bring in every month? Are there interest and dividend payments you could add to your total monthly income? How much is being spent on debts? Save every receipt and at the end of the week total up all your bills and see how much you are spending in general and where you are spending the bulk of your salary. You can use a simple cash notebook, an on-line tool like Wesabe, or you can use a piece of software like Microsoft Money or Personal Accountz.

Learn how to create a simple budget.

After you’ve tracked your spending for a few months, create a budget for yourself based on your findings. Creating a budget is the easiest and fastest way to stop your finances from running wild. By being fully aware of how much money comes in and how much comes out, you will be able to weed out unnecessary expenditures. According to The Millionaire Next Door by Thomas J. Stanley, budgeting is one thing that sets the rich apart from the rest of us — 55% of millionaires keep a budget.

Get out of debt.

Having trouble paying your bills? Consider these options: realistic budgeting, credit counselling from a reputable organization, debt consolidation, or bankruptcy. How do you know which will work best for you? It depends on your level of debt, your level of discipline, and your prospects for the future. Contact your creditors immediately if you’re having trouble making ends meet. Tell them why it’s difficult for you, and try to work out a modified payment plan that reduces your payments to a more manageable level. Don’t wait until your accounts have been turned over to a debt collector. At that point, your creditors have given up on you. If you’re not disciplined enough to create a workable budget and stick to it, can’t work out a repayment plan with your creditors, or can’t keep track of mounting bills, consider contacting a credit counselling organization.

Learn to curb your consumerism.

The quickest way to screw up your finances is to spend beyond your means. It is the surest way to get into debt. Curb the urge to fork out on the latest gadgets, fashion, household and electronic unless you can comfortably afford to pay for them. Always remember to spend less than you earn as this will greatly help you to stay on track and in the green. If you have to spend, never, ever pay for retail. You can easily save hundreds of dollars a year on clothing purchases by waiting for sales or shopping at discount retailers.  Better yet, avoid name brand clothing all together.

Learn to save, save, save.

One of the biggest problems that many people face is how to develop and stick with a responsible savings plan. If you have identified saving opportunities through the budget you developed, make the most of them! Do not expect to start saving like crazy the first few months, but take your time. Keep your savings on a separate account, and do not touch them at all. Create an emergency fund, or a vacation fund, knowing exactly what you are saving for will act as an incentive and will aid you in staying focused on your ultimate goal.

Look for information on the Internet.

Once you’ve got to grips with your current position and laid down your objectives, there are plenty of websites that can help put you on the road to achieving your goals. Using the knowledge of other people on the web is another good way to improve your financial knowledge. Sites such as fool.com, moneysavingexpert.com and moneysupermarket.com have forums where you can chat with other users about your finances.

Popularity: 45% [?]