Most people know the importance of maintaining their physical health, but many people fail to focus on ways to obtain a fiscally healthy lifestyle. When it comes to balancing a budget and managing money, most people don’t lift a finger. Over half of all Americans have accumulated enough debt to keep them paying payments for the rest of their lives. Debt is a growing concern in our society and without intentional measures, more and more people will succumb to the burden of financial disaster. It does not take much to manage your money effectively; just follow a few simple tips to become financially healthy.
Get familiar with your current financial position. It is important to gain an accurate idea of your financial standing. Review all of your expenses and sources of income to become familiar with your debt to income ratio. Include all of your expenses such as credit cards, loan payments, living expenses, medical/insurance expenses. If you are not currently making payments on a particular loan, be sure to include it as part of your expenses for when the payments to become a part of your budget each month in the future. Your debt to income ratio should not exceed 25-30%, meaning your debt payments should not require more than 25-30% of your monthly income. Having more debt than income will make it more difficult for you to gain the necessary balance in your budget; requiring a much more involved plan that consists of debt reduction and money management.
Develop and monitor a monthly budget. The biggest mistake people make in managing their money is by using an “out of sight, out of mind” philosophy. By reviewing your spending habits and keeping track of your money, you will be able to maintain a better grasp on your money each month. Create a list of all your basic living expenses (food, utilities), essential expenses (lodging, medical, etc) and all of your debt payments. Put as much of your left over income towards a savings account as possible. There are many tools that make tracking your spending easier. Online tools provide a much easier mechanism than balancing a check book by hand. It is important you save all of your receipts and balance your accounts weekly to keep a closer look at your spending habits. If you determine you have overspent in the first week or two of the month, you will be able to make some cutbacks towards the end of the month and stay aligned with your budget.
Make saving a priority. It is easy to say you will put some money into savings each month, but we often forget after all the distractions we face each day. Many banks offer an automatic checking to savings transfer to make saving money easier and more convenient. You can set the amount you want to transfer for the day that is most convenient, and the transfer will take place automatically each time without requiring any additional effort on your part. Less than half of Americans save money each month, and those that do save less than the recommended 10% per month. Although saving 10% of your income each month is a great idea, remember that you will need to save much more than that if you don’t already have a retirement account. One way to get motivated to manage your money better, is by getting the whole family involved. Help your kids create a budget for their allowance or chore money and allot a percentage for savings.
Reduce your debts as quickly as possible. If you find your debts exceed the 25-30% of your income, develop a debt reduction plan. Many people don’t realize they can get out of debt on their own before it is too late. Contact your creditors to negotiate better terms to your loan. Creditors are often willing to reduce interest rate or increase your payment terms in efforts to obtain their payment by making it easier for you to make your payments each month. Make sure you get any negotiated deal in writing and avoid “debt settlement” companies as they may end up costing you more money for their services. Always try to pay more than the minimum payment whenever possible to keep you from paying more in interest payments over time. After you have saved at least 10% of your income each month and made all your other payments, put any leftover amounts towards your debt payments. With a little extra effort, you can reduce your debts and return to a financially stable future in no time.