Month 3 Reduce Expenses And Debt

You have to reduce your expenses and debt in order to gain lasting financial controlMonth 3 is crucial. This is the first month you’re going to make changes. The main thing to remember when you reduce expenses and debt is to not make any unrealistic spending cuts at first. Pick four or five problem areas, such as restaurants, clothes, and hobbies. Work on reducing a couple of expenses each month.

Get in the habit of smart spending, making decisions before you spend. Ask yourself, “Is what I want to purchase worth the money I lose for my family’s and my future goals?”

Start Reducing Debt

Avoid making only small minimum payments on credit cards. It can take up to ten years to pay off your current balance. If you charge $30 for dinner, deduct that amount from your checkbook when you get home. Pay the full amount on your credit card bill when you receive it. This strategy will make you think twice about casually dining out. Also, ask credit card companies to reduce your interest rates and forgo fees.

Begin paying regular expenses automatically. Have expenses, such as insurance premiums deducted automatically from your paycheck or bank account.

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Month 2 Set Long Term Goals

Want to make sure your money is working for you? Make sure to set long term goals to stay on your financial trackIf you don’t figure out your long-term financial goals, you will almost always fail to reach them, because short-term needs are always so demanding.

Strategy: Set up a new worksheet with these four headings: Annual Pretax Income, Annual Expenses, Goals and Estimated Cost of those goals in current dollars. Below, I have listed a few goals that some may want to include on their worksheet.

College for your children

The cost of college per child now is roughly * $20,000 + per year academic year at the high end and $12, 000 per academic year on the low end. Multiply the annual cost by the number of years in college, for a range of $80-$36k, and by the number of children. Like everything else, college costs increase with time. The annual increase is about 6-8%.

Worry-free Retirement

Multiply your current annual expenses by 0/8% (if you make $50,000 a year, that’s $40,000). This is about what you will need annually to retire comfortably. Ideally, your investments should be able to provide you with this annual retirement allowance while continuing to grow with inflation.

Homeownership

With a down payment of 20%, the most expensive house you can purchase is about 2.5 times your gross annual income.

Insurance

If you become disabled or die and you have a spouse and children, your family will need 70% of your current income, or 50% if you have just a spouse and no children. If you don’t have insurance, start researching policies now.

Setting long-term goals for your finances helps keep you on the right track. If these goals stay first and foremost on your mind, you are less likely to spend frivolously or live beyond your means. What are some of your long-term financial goals? I’d love to hear from you. Be sure to comment below.

*All price data are reprinted from the U.S. Department of Education’s 2016-2017 IPEDS Survey and reflect reported costs for the 2016-2017 academic year

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Month 1 Get On The Financial Scales

If money were pounds, how would you fare? Ok if you are in England money is pounds. No Matter where you are or what you call money, get on the financial scales and see your money weight.

I know some of us may need more than 7 days to get our finances in order. Some of us may want to take a more calculated approach. If you want something more calculated then this series, Six Months to Financial Fitness is for you. Over the next six day’s, you can see how in the next six months you can be on the road to financial freedom. The first month, you need to get on the financial scales. I know if you are like me, the scales are not your friend. Good thing we are not tracking pounds because that scale is not for me.

It’s no wonder that we’re all so worried about money, We’re living longer, retiring earlier and expecting more out of our retirement. At our high rate of spending and low rate of saving, 75% of us will retire with less than half of what we need. The key is to do something about it now.

Month 1 Get on The Financial Scales

Create an overview of where you stand financially by creating net worth and cash flow statements

Net Worth

Set up separate folders for your bank, investment accounts, credit cards and any real estate and cars that you own. Make up a worksheet. On the left side, list the fair market value of your assets.

Example: Estimate conservatively what you could sell your how for today (not what you would like to get for it). Add up the numbers. The result is your total assets. On the right side, list your liabilities, including mortgages, credit card balances, car loans and other debts. The result is your total liabilities.

Your net worth: Subtract your total liabilities from your total assets. This is your net worth

Cash Flow

Once you have calculated your net worth, determine how you are spending your money on a regular basis.

How To: Set up another worksheet. On the left side, write the 12 months on separate lines, starting with the current month and going in reverse chronological order.

Make two headings at the top of the page: Total Monthly Deposits (credits) on the left side and Total Monthly Withdrawals (debits) on the right side

Step 1: Gather your bank statements for the last 12 months. Under each column on the worksheet, fill in the deposits and withdrawals month by month. Add the columns to get your yearly credits and debits.

Step 2: Subtract from both columns, the annual amount withheld for Social Security and any income taxes paid by check in the last 12 months, This process provides you with a more accurate indication of your spendable income and those expenses over which you control. Add to both columns all other nontax expenses withheld from your paycheck, such as company insurance premiums.

Step 3: On the credit side, add savings and retirement-plan contributions withheld. On the debit side, either add or subtract the increase or decrease in the amount of your consumer debt during the past 12 months.

Step 4: Examine the results: your after-tax annual income and total annual expenses. Income must exceed expenses, or you are heading for financial trouble.

Here is a strategy for you, track your weekly expenses in detail for the next five months to find out where your money goes. I know five months in a long time, but I promise you will be better off financially for doing it. Write down every cent you spend in a small notebook. Don’t try to do anything about the pattern at first.  For those following the six-month plan, it’s best to take at least two months to begin to change your spending habits

 

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Start An Automatic Investment Plan

Investing can be daunting. Its best to start with an automatic investment plan

Time to start your investment plan

It’s not only time to think about starting a financial capability fund, but also about investing for the future. One way to do this is to set up an automatic investment plan. See there I go planning again.

Call your bank, credit union or mutual fund company and arrange an automatic investment plan. With this type of plan, money will be deducted directly from your paycheck or bank account every month. It will be put into an investment account. When I say paycheck, I am not talking about your 401K, I am talking about investment accounts where you can purchase stock options.

To arrange for this, you will need to commit to investing $50 to $100 every month. This money can become the basis of your retirement portfolio.

After you’ve completed this seven-day plan, you will feel much better. You should be able to get back on track financially and most importantly, you will not lapse into your old spendthrift ways.

If seven days was not enough time for you to get your finances in order, don’t fret. It took me more than seven days. If you need a more intricate, slower plan, join me tomorrow when I begin my series Six Months To Financial Fitness.

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Establish A Savings Plan

I love to plan everything, even down to how much i am going to save. Establish your savings plan today

As you can see by now, I am big on planning. I plan everything including how much I want to save and you should too.

If you don’t have any money saved, plan to begin to saving while reducing your debts. This should not mean that you end up paying off your debts more slowly.

Financially, that does not seem to make sense. It’s better to pay off credit card debt at 20% interest than to save money that earns 4% or 5% interest. Psychologically, it’s a real boost to get some savings underway. You don’t want to end up back where you started, with no savings, while paying off debt.

In addition, your savings will be helpful in case you lose your job or become ill. I don’t particularly like to call them emergencies. Things happen, it’s as simple as that. Most personal finance experts call them emergency funds, but I call them capability funds. You must be capable of handling anything that comes your financial way. Hence, the financial capability fund.

First, let’s define a financial capability fund. A financial capability fund is cash that you’ve saved for the sole purpose of helping you maintain your normal life through curve balls that life throws at you. Most of the time, you shouldn’t touch the money in this fund. It is supposed to sit there earning a bit of interest and waiting until you actually need it. Times like when you lose your job, an appliance breaks down or your car needs a repair.

Quite often, people who don’t have a capability fund see the idea of having to save up money as some form of punishment.  After all, money put in a savings account and locked away is money that can’t be used to live, right?

Actually, it’s quite the opposite. Having a capability fund means that you do have room to breathe. You don’t have to completely panic if your car breaks down or if you lose your job or if you suddenly need to replace a hot water heater. Instead of having to find some way to squeeze those expenses onto a credit card or beg a friend for some money to help, you can just pay the bill – no worries.

Smarter Saving Strategy

People who systematically put aside a certain amount of money each month over a period of years should remember to increase the amount each year to make up for inflation. $100 a month, which was a fairly significant amount 25 years ago, is not adequate today to build a retirement nest egg. If you assume an inflation rate of 4%, the value of the money you have saved will be cut in half in 18 years. If you accumulate $100,000 it will only be worth $50, 000 after inflation. So make sure you give account for inflation in your savings.

If you have been hanging in there with me for the past 6 days be sure to come back tomorrow when I will give you a bit of investing advice.

As usual, I would like to hear from you, tell me your savings strategy in the comments below.

 

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Develop A Debt Reduction Strategy

Don't forget to develop a debt reduction strategy while you are getting your finances in orderWe are rocking and rolling our November in order to set ourselves up for our best financial year in 2018! Today I want us to take our 20 minutes to develop a debt reduction strategy.

Now that you have figured out how to spend less than you earn, you may be wondering what to do with that extra money you are saving. I would suggest paying off any lingering debt. There are a couple of ways you can do this.  You can start with the debt’s that charge the highest interest rates. This is normally your credit card bills.

Set target dates for when you want each debt to be paid. Don’t be too ambitious or you will set yourself up for failure.

Below, I have attached a live stream masterclass that I held earlier this year. It has some great strategies for you to reduce your debt and start saving. Be sure to take a look at it and let me know what you think in the comments.

This is day 5 so we have two more days in this series. Come back tomorrow when we will establish a savings plan.

 

Death To Debt Masterclass

Simple debt reduction strategies for do-it-yourself debt reduction

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What’s Your Plan

Do you have a plan to get your finances in order or get out of debt? If not, you need one. So what's your plan?

 

So how’s it going with getting everything squared away? Are you taking the 20 minutes per day to get your finances in order? I know it is a daunting task, but if you want financial freedom you have to take control of your finances.

Moving on to the next step of taking control. You need to devise a plan for living beneath your means. While reviewing your finances did you find any areas where you could reduce spending? If so, start there. Reduce your monthly expenses so that you spend less than you take in. Often times, people ask me how much they should cut back. While there is no right or wrong answer, I use the example. If you are adding $500 a month to paying off your credit card balance, then you have to cut $500 a month from your spending just to stop your finances from deteriorating.

Using the example above, even if you manage to find $500 you are still not making progress. The rest of the solution is for you to cut MORE than $500 to get your current debt under control and start building your savings.

Todays 20 minute assignment: Make a list of all of the expenses you are eliminating and how much you hope to save. I’d love to know what you plan to eliminate. Leave me a comment below and let me know.

Be sure to come back tomorrow so that we can begin developing a debt reduction strategy.

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Day 3 Categorize Your Expenses

If you really want to take your finances to the next level, then you need to categorize your expenses

Hey Hey!!!! We are rocking and rolling with our finances! Have you organized your finances and found out where your money is going? If so then you are ready for the next step, categorizing your expenses.

If you want your finances to be effective, then you need to organize them in a way that is easy to understand. Here is the most basic way to categorize your expenses. You can slot them into one of the following three categories.

  • Regular payments that you have to make, such as, your mortgage and utilities
  • Expenses you must incur but that could be reduced, such as food, clothing, and transportation
  • Expenses you could eliminate entirely, such as eating at restaurants, going to concerts and frivolous shopping.

In the last two categories, you will find many areas in which you can cut back. It is all about setting yourself up for financial freedom and making 2018 your best financial year yet. Here is your 20-minute assignment for day 3, categorize your expenses.

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Day 2: Figure Out Where Your Money Goes

Tracking your spending helps you figure out where your money goes

I hope you are excited about these seven day’s, I sure am. Yesterday we gathered all of our financial records to get them organized. Now that we have all of our financial statements in front of us, it is time to figure out where our money is going. We can’t stop the leaks until we find out what and where they are.

Have you ever asked yourself, where does all my money go after paying bills? If so then you are not alone. By compiling your financial statements you are ready to prepare a summary of your monthly expenses.

Day 2 Figure Out Where Your Money Goes

Make a list of all of your expenses, right down to the smallest item. Pay real close attention to exactly where your cash is going. Oftentimes, you will find a lot of room to cut back in certain areas. If necessary, keep a journal for a day or two and write down every purchase you make. I realize this may be tedious, but you will reap so many benefits from doing so. One such benefit is quickly realizing what you waste money on.

Another reason to track your expenses is that it will help you figure out if you are living within your means because it holds you accountable for every penny you make and spend. You will know exactly how much you spend on both needs and wants and whether or not you are living within your means based on how much of your income is spent on both.

This is the first step in gaining control of your finances. I can’t stress enough how important it is to know where your money is going.

Another 20 minutes down and another 20 minutes closer to financial freedom. Now that we have organized and figured out where our money is going, come back tomorrow so we can categorize your spending.

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Day 1 Take Control of Your Assets in Seven Days

Take control of your assets in seven days

 

If you have been following me for awhile, you know I am part of the See Jane Write group headed by Javacia Harris Bowser. Every November, members participate in #Bloglikecrazy, where we post a blog post every day for 30 days. For this 30 day’s, I want us to focus on getting our finances setup for 2018.

In this first series, we will take control of our assets in seven days. The only way to achieve financial security, freedom, and peace of mind is to live beneath your means. I’m not saying become a pauper or anything like that, but what I am saying is give yourself some extra money to pay off debts and begin saving.

I know that some people think it is hard or near impossible to save in this day and time. I’m here to tell you that even in this day and age it is not only possible but essential to be financially responsible. Rest assured it’s not as hard as you think. In this seven day plan, I will show you how to take control of your money in just 20 minutes a day.

Day 1: Organize Your Financial Records

If you want to dig yourself out of a financial hole, you must figure out first, how you got there. That means calculating how much money you earn and where it goes. As a first step, gather the following records.

  • Recent months pay stub.
  • Last tax return
  • Most recent 3 months bank statements.
  • Checkbook (if you use one)
  • Current credit card bills

The paystubs will tell you how much you bring home from work. The tax return will tell you how much you receive from investments (if you have any) and any other sources of income. The bank statements and checkbook will tell you where you are spending the bulk of your money. Lastly, the credit card bills will tell you how much additional money you spend that is not being covered in your bank statements.

Ok, that’s all for today, come back tomorrow so we can get down to business and get those finances under control.

 

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