It can be pretty intimidating to start managing your money if you’ve always been a “have-money-will-spend-it” type. Few of us previously gave money management much thought until we got a wake-up call. If that sounds like you, don’t fret. Here are four ways to look at your financial life and start building a plan of action for a better tomorrow.
1. How Much Debt Do You Have?
A cornerstone to getting your financial life under control is to look realistically at how much debt you carry. It is easy to ignore your debt and hope it will go away. However, if your debt consists of high-interest credit cards (or worse, payday loans!), every day you ignore your debt it will grow more dangerous. Dangerous? Yes. Not only can excessive credit card debt wreck your credit score or rob your future security, it can stress you and depress you like few other circumstances.
What should you do? First, truly add up your outstanding debt and look it in the eye. Next, figure out which part of the debt you want to attack first. Dave Ramsey coined the phrase “debt snowball.” Pay the most toward your highest interest rate debt first. Continue to pay the minimum due on all others. Then, when your highest interest rate is paid, roll the difference on to your next debt. Repeat. (Some think it is better to attack your smallest debt first for psychological satisfaction. What do you think?)
2. How Much Have You Got in Savings?
Okay, now I’m going to scare you. Are you ready? Here it goes. Most Americans have little to no savings cushion. That means two things: one, that when a short-term emergency happens you have to rely on your credit card. And two, most of us are wholly unprepared for situations like job loss. I’m sure you’re an intelligent person who reads or watches the news. Have you heard about the changes going on in the economy? You must be prepared.
What to do? Set aside a small amount each week to build up an emergency fund. Yes, even if you have debt. Find the extra money by really looking at areas in your life where you can reduce spending, and look for ways to earn more. If you struggle to stay committed, make your contributions automatic or enlist the support of a friend. You’ve got to make saving a habit or you will continue to struggle at every bump in the road.
