The first step in achieving your financial goals is to truly understand your finances. Below are a few important things you should know to get a handle on your money and create a path to financial success.
Budgeting is the cornerstone to anyone's personal financial plan, whether you're saving a lot of money already or if you're behind on your financial obligations.
Keeping a monthly budget works best for most people so they can divide it by 4 to figure out what they should spend per week or multiply by 12 to have a yearly budget.
Following are three simple steps to help you budget:
Step One: Capture & Analyze
Track Expenses for One Month - keep receipts for everything you purchase or pay on for one month - large and small - everything. Gather all receipts, bills, and statements together with pay stubs, and tax bank, credit card and investment account statements.
Record Income & Expenses/Spending - use a spreadsheet to record all monthly income
Tally The Totals - Do you have more in your expense column or your income column? What is causing expenses to gain the upper hand in your monthly life? Have your savings goals taken a back seat?
Step Two: Cut & Adjust
Periodic and discretionary spending is often the trickiest in the budget. You'll want to use a critical eye and separate your needs from your wants. We all have "needs" we truly cannot live without, and we can survive just fine without most of what we "want". Check these expenditures for ways to free up cash to begin or build up your savings and investment programs.
Step Three: Create & Track
Your analysis and commitment to stick to a budget has yielded information you need to map out a new financial path. A targeted and detailed list of planned income and expenditures will enable you to hold yourself accountable and save for the future.
Allocate Appropriately - Of your monthly take-home pay, aim to stay within the following allocations.
- Mortgage/Rent: 25 - 35 %
- Food: 18 - 23 %
- Consumer Debt: 10 - 20 %
- Savings: 7 - 10 %
Useful Tools - Online tools, such as the ones available through Palmetto Citizens, can be extremely useful in helping you pull your budget together and monitor your spending.
Track Your Progress - The simple process of tracking expenses helps keep spending in check. Regularly review how well you are staying within your budget. Is your money outlasting the month? Beyond mere survival, how can you "find" money to start knocking down debt? Are you saving for emergencies and long-term goals?
Reviewing Your Credit Report
It is important that you understand the information on your credit report, regardless of your financial situation. This information directly impacts your ability to obtain a credit card, buy a car or home, rent an apartment or even get a job.
Two of the best reasons for reviewing your credit report are to make sure it is accurate and to protect you from fraud or identity theft.
You can get a free credit report from each of the three nationwide consumer reporting companies (Equifax, Experian and TransUnion) every 12 months. Some consumers elect to get a report from one of the three credit bureaus every four months, providing a staggered look at their credit status.
The official web site, www.annualcreditreport.com, is the ONLY authorized online source for you to get a free credit report under federal law. Some other sites claim to offer "free" reports but may charge you for another product if you accept the "free" report. You may also receive your free credit report by calling 1-877-322-8228.
While your free credit report does not provide a free credit score, it will show you if there are negative items that would negatively impact your score, such as late payments. Following are the factors that are evaluated, and the weight of each one, in determining your credit score:
- Payment History: 35%
- Amounts Owed: 30%
- Length of Credit History: 15%
- New Credit: 10%
- Types of Credit in Use: 10%
Develop an Emergency Savings Fund of $1,000, even if you must pay only the minimum on all bills. The most ideal option is to get this money in the first month of your plan. This savings is the first level of the emergency fund to protect you from small emergencies. If your income is very low you may settle for $500, or if your household income is over $50,000 you might want to choose $2,000.
Your emergency fund will give you piece of mind. Knowing you have money set aside for the unexpected alleviates underlying stress in your life.
Keep your emergency fund in a savings account or a money market account. This money is not an investment, it is an insurance policy and you need to make sure you have access to it.
Most people can save $1,000 in a month or so. Look at ways you can cut back on your spending. You want to be committed to quickly getting $1,000 in your emergency fund.
Think about selling things, most people have thousands of dollars of stuff just cluttering up their houses, sell it!
As you access your emergency fund for an actual emergency (like a large hospital bill or unexpected car repair), you want to then work to "replace" the funds.
MoneyWACH is a partnership between Palmetto Citizens Federal Credit Union and WACH FOX focused on financial education in the Midlands. Over the course of the year we'll cover financial and economic topics that matter to you. The segment airs the first Monday of every month on Good Day Columbia and will also be archived here for your convenience. Achieve your potential with Palmetto Citizens Federal Credit Union and WACH FOX.