Sunday, November 22, 2009

Creating a Financial Plan

Managing money and having financial discipline can be seen as a difficult and daunting task, but it doesn’t have to be. Here are some tips on managing your finances.

  1. First and foremost, track your expenses. It’s as simple as jotting down or using a spreadsheet to track what and how much you are spending your money on. Set a limit on your discretionary spending.

  2. Reduce expenses if possible. It’s amazing once you track how much you are spending and research competing companies for services such as insurance, telephone and cable, the amount of money you might be able to save.

  3. Set up a budget plan. Anticipate all of your earnings, expenditures and payoff plans and stick to it. I recommend setting it up paycheck to paycheck. It is also helpful to establish a debt payoff plan and even a broad set of goals for 5-10 years from now. It’s astonishing how writing something down is like writing a contract with yourself once you make the commitment.

  4. Incorporate “fun” events into your budget plan. Getting yourself to think about your limits is important. Even the best made plans can be ruined if they are not realistic. Including some of your hobbies is a critical part of your planning.

  5. Pay off debt, and obviously, the higher interest rate credit first. You could save hundreds even thousands by paying off higher interest rate credit. If this is difficult, try to transfer the balance to a lower interest rate credit account. You will save money this way.

  6. Put a little away to savings. This is extremely important and often overlooked. Having a cushion in your bank account can be a saving grace. I know it’s hard, but worth it. Putting away $54 a week with an 8% interest rate over 20 years will give you roughly $100K. To find out how much to reach your goals, there is a great financial calculator at:

  7. Live below your means. Mentally train yourself to put money aside and pretend it doesn’t exist. Once you’ve demonstrated self-control, you can then get into more sophisticated financial planning.

  8. Contribute as much as you can to your retirement plan; at least meet the match. If your employer matches up to 5%, put in 5%. If they put in 6%, put in 6%. Essentially, it’s free money.

  9. Don’t let setbacks deter you. Get yourself back on track.

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