How should you manage your finances?

 

5 Step Plan

One expert suggests a 5 step plan for living within your means.

1.    Know what is coming in.

2.    Write down what you are spending.

3.    Plan your future spending.

4.    Include money for saving in that plan.

5.       Eliminate high-interest debt.

From “You don’t have to be rich: Comfort, happiness, and financial security on your own terms.” By Jean Chatzsky (2003). Penguin Books.

 

Spending

it is important to keep a record of what you are spending.

Then you should add up the amount for each type of expense. This will will help you think about the amount for each type of expense. 

If you are unable to account for a lot of your spending, it probably means that you need to watch what you spend each day.   

 

This calculator might be helpful.

http://www.fincalc.com/bud_02.asp?id=6

 

Emergency Fund

 Most advisors say that the best way to save is to have money withdrawn from each paycheck and placed in an account. These accounts used to be called Christmas clubs but you could call it your emergency fund.

 

This calculator might be helpful.

www.moneymanagement.org/FinancialTools/

 

Reducing Debt

What are the warning signs of too much debt?

·        If you borrow to pay current bills

·        If you are frequently late in paying bills

·        If you need to use credit for essential expenses

·        If you are being contacted by bill collectors

 

 

This calculator might be helpful.

http://www.fincalc.com/det_06.asp?id=6

 

Credit History and Credit Score

Your credit history is a record of your payments on debts such as credit cards, car loans, home mortgages, etc.

Companies that have granted you credit supply information about your accounts to credit reporting agencies and these facts make up your credit report.

You can order a report on your credit history by calling any of these credit bureaus.

• Equifax at 1-800-685-1111
• TransUnion at 1-800-916-8800
• Experian at 1-888-397-3742

You can request a free copy of your credit report once a year. 

If you have been turned down for credit, you are entitled to a free copy of your report.

If there are errors in your report, contact the company involved and try to get the error corrected.

If your problem is too much debt, contact your creditors to see if you can work out a payment plan that is better for you.

There are some non-profit companies that will work with consumers to reduce their debt. Beware of companies that offer quick and easy solutions. They may be unreliable.

 

Managing Credit Use

If you believe that you spend too much as a result of using credit, here are some tips:

·        Cancel the credit cards that you don’t use

·        Use only one credit card and set a monthly limit for yourself

·        Pay your bills with cash

·        Use a debit card instead of a credit card (the amount will be deducted from your account as soon as you make a purchase)

·        Find a credit card with a lower interest rate

·        Pay your bills on time instead of paying interest on the balance

 

Checklist for managing your finances.

ü      Write down what is coming in.

ü      List all of your expenses.

ü      Make a plan for future spending.

ü      Start an automatic withdrawal for emergencies or savings.

ü      Check your credit score.

Checklist for using a debit card

     ü  Always know where your card is located such as your wallet or purse.
     ü  Keep your debit card PIN (Personal Identification Number) a secret.
     ü  Check your debit card receipts against your monthly bank statement.
     ü  Report a lost or stolen card as soon as possible.

Checklist for using a home equity loan

     ü  Review other possible sources before borrowing against the equity in
         your home.
     ü  Repay the home equity loan as soon as possible.
     ü  Remember to include interest charges as expenses in your income tax
         calculation.