However, action can bring change for your personal finances. If one of your goals for
2012 is to control your money — instead of letting it control you — here are eight simple (yet effective) actions you can take to build a brighter financial future.
Action 1: Track every penny you spend
You can use online tools or computer software. If you’re not comfortable with
technology, use an old-fashioned check register. It doesn’t matter how you track your spending, the most important thing is to do it. This is the best way to become conscious of how money actually comes and goes in your life as opposed to how you think comes and goes. Record your transactions as soon as possible, and don’t fudge the numbers. Most importantly, don’t judge yourself. This is an exercise in data collection; not the time to change your habits.
Action 2: Develop a budget
Many people fail to budget for a variety of reasons: it’s boring, you don’t think you need it, or you don’t know how. But this simple act can provide a roadmap for your finances. After you’ve tracked your spending for a few months, use the data you’ve collected to develop a budget. Like tracking tools, there are a variety of options that range from highly sophisticated to simple and easy. A popular financial mantra is “spend less than you earn.” Common sense, yet many people never learn to do it. This is easier to do if you track your spending and develop a budget.
Action 3: Optimize your accounts
Are you currently paying a monthly service charge as well as other fees for your bank account? Not earning interest on the account? If so, consider optimizing your accounts by opening an interest-bearing savings or Money Market account, or moving to a checking account that pays interest and has little/no fees. If you use credit responsibly, be sure to choose a credit card that has no annual fee and pays you with useful rewards.
Action 4: Start an emergency fund
Many people live paycheck to paycheck and spend everything they earn. This works
well until something goes wrong, and suddenly they find themselves without money to pay for a car repair, or facing an expensive doctor’s bill. Make it a priority to save for emergencies. Open a savings account just for the unexpected and schedule automatic deposits of $25 or $50 to your account every time you get paid.
Action 5: Get out of debt
Make it a goal to save money by paying down your high-interest debt first. If you’ve
tried that and failed, consider paying your debts starting with the smallest balance first. This may not be mathematically ideal, but it offers some tremendous psychological payoffs, and keeps you motivated to stay in the game. Just remember there is no perfect way to tackle this challenge. If you spend so much time looking for the “best” choice that you never actually do anything, you’re sabotaging yourself. Choose a good option — one that works for you — and act.
Action 6: Fund your retirement
No matter how old you are, now is the time to begin saving for retirement. The
extraordinary power of compounding interest favors everyone — and in a big way! Take advantage of any employer-matched opportunities, such as a 401(k) plan. Also consider starting an IRA. Don’t understand retirement accounts? Contact us an we’ll explain it you in simple, easy-to-understand language.
Action 7: Automate your finances
When you make things automatic, you remove the human element, making it more
difficult for you to mess things up. A perfect example is tying your checking account to your savings account, offering you a safety net if you bounce a check. But there are other ways this can work for you: automatic payments with the gas, cable, and auto insurance companies and automatic deposits to a savings account.
Action 8: Educate yourself
Knowledge is power. Personal finance doesn’t have to be a mystery. Find blogs or other resources like this, understand how you can build some of these tips into your daily financial routine, and then take action.