The start of a new year is a perfect time to set the intention to take charge of your finances! But of course, if your personal finances have spun out of control, then anytime is the perfect time to right the ship and take charge of your finances!
- Don’t play the blame game.
Do not play the blame game against yourself or others (including your spouse)! A strong foundation cannot be built on guilt, shame, or other negative and unhelpful emotions.
Past purchases, past decisions, past mistakes are in the past – leave them there. Taking charge of your finances today means focusing on the future, focusing on what you can do. Creating your fresh financial start means starting with a fresh emotional start.
- Take an honest look at your finances.
You must know where you are beginning so that you can map out how to get where you want to go. Calculate your income and monthly expenses, add up all of your debts, review every one of your financial statements.
Take an honest look at the full picture of your personal finances. Are you over-spending? Are you not saving enough for retirement? Is your credit card debt unmanageable? Once you fully understand where you’re at, you can set priorities of what to do next.
- Get your debt under control.
If you are deep in credit card debt, it is time to create a plan to pay off the debt. Stop charging more, create a budget and stick to it, put all of your extra money toward paying off your debt. Focus first on paying off your credit card with the highest interest rate. Once that one is paid off, shift your focus to the card with the next highest interest rate.
If you cannot reasonably pay off your credit card debt within the next three years, then it is time for you to explore if bankruptcy is the right solution for you. This applies to medical debt as well.
- Save… and then save more.
Taking charge of your finances means saving more. Try your hardest to save more. Trim expenses, and then trim more expenses. This does not mean giving up all luxuries or things that bring you joy. But it may mean foregoing the brand new iPhone and daily Starbucks runs. Habits are hard to change. It won’t be easy, but it will be worth it.
When it comes to savings, you have to think big and long-term. At a minimum, necessary savings include emergency savings that could cover at least 6 months of living expenses and a robust retirement account.
Consider this: Time and again studies show that people who spend their money on experiences are happier than people who spend their money on possessions. Consider how a trip to the Galápagos would enrich your life more than an upgraded cell phone.
- Evaluate your retirement plan.
Your 401(k) and Roth IRA are invested in stocks, bonds, mutual funds, and exchange-traded funds (ETFs). When retirement is further away, invest more heavily in stocks because they offer a higher rate of return. In your 20s and 30s, you will have time to ride out the stock swings. As you get closer to retirement, increase your percentage of investment held in bonds. They offer a lower rate of return than stocks but are generally safer investments.
Diversify your assets. Mutual funds and ETFs own dozens of different stocks in their portfolios, making them ideal for retirement savings. Even if one or two stocks go south, the portfolio can still perform well.
If you follow these tips, you will be well on your way to taking charge of your finances. Check out our other articles to learn more about mastering your personal financial management:
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If you’re struggling with massive debt…
If you’re deep in debt, have fallen behind on payments, and your credit card debt is mounting, it is time to take back control of your finances. Take an honest look at your situation. It may be time to explore all of your debt relief options, including bankruptcy.
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