Credit Crunch: Get a Grip On Your Wallet
From paycheck to paycheck, from one trip to the cash machine to the next, your wallet empties too quickly, too often. And what about that last raise - the money you promised to put straight into investments? Where did that go? No idea, right? It's time to get a grip.
It's easy to spend money, that's no surprise. With every salary increase, it seems, your lifestyle rises to meet it, despite your best intentions to save more. While vowing to pay off all the bills before investing seems like a noble idea, it is, in fact, a pattern that will put you in financial gridlock. To break free, you must change the way you handle your money. Build a reality-based budget, and learn to stick to it.
Setting a goal and knowing what you want to accomplish will motivate you to find a way to achieve it, whether it's owning a home, financing a college education, or starting your own business. Having a goal can bring about the necessary mindshift; investing needs to be a priority, not an afterthought. Dreaming a little dream should be easy, but what about the empty wallet? That too can change.
Pay down your most expensive debt first. Begin by making note of the money you spend on financing items other than your home mortgage. Once you see the numbers, it won't seem worth it. If you have debts, your primary goal should be to eliminate them-that means making debt repayment a fixed expense category in your budget, including education loan payments. Once you're out of the red, it will be easy to put the same amount toward funding your goals.
Establishing a budget to allocate where your money will go gives you power over your money. Most people are "unconscious" spenders, buying the same things every day out of habit, or buying on whim. But living in this ignorant bliss will empty your wallet-fast. Start keeping a log of your fixed expenses and daily purchases. Two weeks of faithful recording will take care of any spending memory lapses and help you set realistic budget benchmarks. Use this new awareness to prioritize: Spend on what's important, cut what isn't.
If you find that fixed expenses (rent/mortgage, utilities, insurance, transportation) are consuming nearly all your income, consider adjusting your lifestyle. Move to less expensive housing, buy a cheaper car, or talk less on the phone. But if your fixed expenses are under control, reevaluate your personal spending. Could your entertainment fund be a bit extravagant? Or try scaling back on luxury or miscellaneous purchases. These types of cuts can produce the cash flow for funding your goals.
A "goal fund" is a budget essential. Aim to dedicate 10 percent of your net income to the cause. You may need to start with 5 percent and increase the amount by 1 percent whenever you get a raise. Then investigate an appropriate investment for each goal and transfer the money into that vehicle by direct deposit. If the money never makes it to your wallet, you'll miss it less!
Saving for retirement is also a must. If your company has a matching program, that's even more incentive to contribute. Time and compounding will help achieve the desired results for all your goals.
Remember, a budget is dynamic and changes as your life progresses. It's a balancing act to maintain a comfortable lifestyle while planning for the future. The reward is worth it: eliminating anxiety and gaining control of your money.
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