Curious about what you need for a healthy financial plan? Read on and you will find out.
First, have
Budget: Start with a simple written plan (budget) of the monthly net income coming into your household and how much is going out. This plan will be the cornerstone of your financial future and allow you to maintain a reasonable lifestyle while paying down debt and saving.
You need to know what is coming in before it is spent while keeping priorities in mind. Housing, food, and basic utilities (gas, electric, water, and sewage) are the top three priorities, followed by auto loans, secured loans and school loans.
It is also a good idea to track your expenses for a month by saving either receipts or recording all purchases in a small notebook. It is easy to lose track of the little things, and little things add up to big things. A $1 cup of coffee each morning on your way to work equals $260 a year. These so-called small expenses are little leaks in our budget that can easily be plugged and redirected toward either savings or paying down debt.
Credit: Be aware of what your credit report says about you and make every effort to make it as accurate and positive as possible. This is important because whether you are applying for a loan or credit, applying for a job, or even renting an apartment, chances are that your credit report will be viewed. You want to have every opportunity that comes with good credit. Here is the link for the only authorized online source for your free annual credit reports:
www.annualcreditreport.com/cra/index.jsp
Also, be careful not to build debt in an attempt to build credit – they are not the same. Do not max-out credit limits. Paying all bills on time and paying down your balances will help you to build a good credit report, which leads to the next area, Debt.
Debt: Now that you know how much money comes into your household after taxes and what goes out, take a closer look at your debt. Total your monthly credit payments, excluding housing, and compare it to 20% of your net income or divide your total monthly credit payments by your monthly net income (payments exclude housing and include: auto loans, school loans, and personal loans as well as credit cards or other accounts that have a balance on which you are making monthly payments).
Watch for these warning signs of too much debt:
If any of these signs hit close to home, work hard to reduce your debt with these suggestions:
Savings: Build up your emergency savings to $500 and strive to have at least three months of your net income saved. With this cushion, you will not have to resort to credit when faced with an emergency. Once you see where your money is going and you begin to pay off debts, you will be able to save more.
Look into other forms of savings such as Certificates of Deposit (CDs), IRAs, or even a college fund for your child. Do not neglect your retirement savings. Check into the programs available where you work such as a 401K, and make sure you contribute enough to get the maximum match.
Helpful tips for saving:
Now that you have a plan, follow these suggestions to keep you on track:
Remember the A, B, C, Ds:
Be proactive and take time to review your plan.
Copyright © 2008 Kathy Jo Pollack
Kathy Jo Pollack is a certified life coach, trainer, and speaker with a focus on financial independence. She has worked with thousands of people from all walks of life as the training specialist for Consumer Credit Counseling Service and has taken her passion and expertise to a new level as a coach and writer. She also offers various teleclasses and seminars. Please visit her at: www.kathyjopollack.com
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