Top 4 Steps To Regaining Financial Health
If you are experiencing a monetary squeeze as result of the recession, you may have built up major credit card or other debt. While your situation may be grim, it is not hopeless. The important fact is that you need to get as much out of every dollar as possible. Start by thinking small, rather than big. Even the smallest decrease in spending or increase in savings can make a large difference over time. By focusing in on the smaller amounts you can keep from feeling overwhelmed.
Here are some steps to get you on your financial feet again:
1. Set up a budget. Total your expected earnings for the year and split them into twelve equal sections. Then list your monthly expenses: rent/mortgage, car, credit cards, food, clothing, gifts, dining, and other expenses. Assess how your money is being spent. Do you eat out more than necessary? Are you spending more on clothes than you need? Are you paying for more auto insurance coverage than you need? You might be surprised at how much you are spending on discretionary items. Cutting here is the first step in freeing up more money to save for the long term or to pay off debts.
2. Pay off your debts. If you can not make the minimum monthly payments on loan balances, contact your creditors to arrange a monthly payment plan that you can manage. Start by paying the account with the highest interest rate first, while making minimum payments to the others. Continue with this until all your loan balances are paid off in full and then force yourself to spend money carefully. Do not buy anything unless you can buy it in cash. Eliminate some of your credit cards.
3. Rebuild your credit. First, open a savings account, and open a checking account, one with low minimum balance or free checking. Establish a goal for saving on a regular basis. Many experts say that one should save at least ten percent (10%) of each paycheck. If you feel this more than you can manage, choose a more comfortable amount. Place this amount into your savings account. Use this money as security for small loan and pay the loan back on time. Since credit cards are necessary for such items as hotel reservations and airline tickets, it may be a good idea to keep one, as long as you do not spend what you do not have. Always stick to your budget, save money regularly and after a few years your credit problems will disappear.
4. Get professional help. You might want to seek advice from a professional financial advisor. An advisor can help you organize all the budgetary details and offer suggestions on how to cut the extras from your spending. You and your advisor may decide that the best option may be a consolidation of your debts into a single loan. Someone knowledgeable about investments can also help you allocate your savings wisely so you can build back your asset base. That way, you will have a firm financial foundation and can face the future more confidently. Planning and discipline are the keys to financial success. Have a plan guide your spending, and then follow it closely to help spend your money wisely and save for a more secure financial future.