As we have already identified, April is the official National Financial Capability Month; however, regardless of the day or month of the year you begin, the 30-step path will help you to create a successful strategy to better your overall financial position. Today, we discover the first and most important step in developing and following a financial plan is to examine your attitudes about money. Are you ready to accept responsibility for changing your financial situation? Do you believe that you can and will change the way you make financial decisions? Can you identify at least one benefit you hope to gain by changing your money management behavior? Last but not least, can you commit to changing your money management habits?
Today is the first day of the rest of your life. Cliché, I know, but true. Taking the first step in anything is hard (like dieting and exercise), and it certainly holds true when it comes to financial health. We are barraged each and every day with the doom and gloom reports of the economy, stock markets, and bailouts. Is it time to turn off your TV and replace all the doom and gloom with some bloom and boom?
The building blocks to financial well-being are made of focus, control, commitment, and action. Fear has most people clenched in its grasp. Don’t let yourself be part of that group. Turn your financial fear into focus.
Focus on what you CAN control – your own spending and how you spend your time. Financial Capability Month offers many tools and resources for financial education and tips for taking advantage of opportunities to increase your financial success. By taking control of your own financial decisions, you will not only impact your own financial well-being, your positive actions will also impact your community, your state, your nation and the world economies.
This is your opportunity to put yourself back in the driver’s seat! Review your last several month’s bank statements. Exactly what are you spending your money on? It adds up quickly. Did you know that if you brewed your favorite coffee at home instead of buying it on the way to work every morning you could save yourself over $1000 this year? (And that is just one cup a day…) With that simple change in your routine, you would save $1000 and still have your favorite coffee every morning!
Do a thorough review of your bills and you might just find:
- Monthly automatic charges to your credit card or bank account that you are no longer using or getting any benefit from.
- Insurance charges – have you reviewed your insurance lately to see if you are getting the best rates?
- Are you getting the best interest rates on your credit cards? Transfer high-interest credit card balances to low-interest ones and then commit to paying them off.
- Have you read the fine print on your credit cards? Many credit card companies can raise your interest rate if you have ONE late payment to ANY creditor. It is up to you to know this.
- Are you an impulse shopper? Today if I see something I want, I make a game out of it. I set it aside and walk away to continue shopping. If I REALLY still want it after 2 minutes, I buy it. What happens most of the time is I am too lazy to go back to get it….thus I save myself the time and the money!
How do you spend your time?
Think about how you spend your time. Fear paralyzes people. Get to the head of the pack by using your fear to motivate you to take action instead of paralyze you.
- Start a part-time business from your favorite hobby. Could you use an extra $100 every week?
- Instead of spending every evening watching tv or playing on the internet, volunteer at your favorite charity. The more you give, the more you receive. Not only will you be helping others, you will be meeting new people….maybe even your next business partner!
- Have a garage sale…it really works. My daughter raised $1500 on one Saturday alone…in just 5 hours.
- Don’t be alone. Find people who share your passion and brainstorm ways to make money together. 1 + 1 can equal 11 — if you put your heads together.
- Look in your local newspaper for free seminars on investing. By educating yourself you will be able to start spotting opportunities that are right in front of you!
- Start educating your children about money. Help them start a business. By talking to your kids about money and helping them you will be giving them the gift of a lifetime…financial education. You may even learn a thing or two yourself through the process.
I am a firm believer that it is more effective to commit to financial habits, than to money outcomes. If you are making better choices on a day-to-day basis, inevitably you will see the results you want. Here are the three habits you should commit to that will get you the better money outcomes most of us want.
Habit: I pay myself first. This is likely not the first time you’ve heard this. Paying yourself first is the first rule of money management, but most of us don’t follow it, and many who do, don’t stick to it. Paying yourself first means putting away a percentage of your income, ideally 10 percent, exclusively for long-term savings and investment goals. This “payment” should be treated like your mortgage, rent, utility or any other bill, paid every month, no matter what. That means training yourself and building your budget to live on 90 percent of your income.
Your first goal is to accumulate savings equal to 6 to 9 months of your annual household budget, to be touched only in case of loss or interruption of employment income. After you’ve reached that savings objective, you can earmark additional self-payments towards long-term goals such as a down payment on a home, capital to start a business and building an investment portfolio. Keep this money in an account separate from your main bank accounts, to reduce the temptation to dip into it. Also, pay yourself by automatic deposits from your paychecks–just as income tax, health insurance contributions, and other costs are deducted. By the way, your financial capability fund is in addition to, not a substitute for, the money you should also be saving toward retirement. Consider monies earmarked for retirement as down payments to finance your future. Even if you’re paying down debt, you must still pay yourself, just as you wouldn’t skip a rent or mortgage payment. If you must, you can reduce your self-payment to 5 percent of your income, building back to 10 percent as you eliminate debt and/or increase your income.
Habit: I do not live in debt. Of course, to make this habit a way of life, you have to be serious about reducing the debt you have. One way to go is to focus on paying off your smallest debts first, quickly getting rid of them so that you can apply those payments toward progressively larger debts. For example, you might pay off the $500 credit card balance, then move on to the card with the $900 balance, before focusing on the one with the $2,000 balance. Knocking out the smaller debts quickly can provide you with the positive motivation to attack the larger debts.
Another way to go is to focus on the debts charging the highest interest rates and work your way down to the ones with the lowest. This really makes sense if you are still carrying debt on high-interest rate cards. This approach will help you save money on interest payments in the long run. Again, as you eliminate each debt, apply those payments to the remaining debt.
No matter which way you go, always make at least the minimum payments on all outstanding debt, avoiding late fees by always paying on time (ideally three days before they are due). Also, any payment agreements you’ve made with a creditor or debt collection agency should be given priority in your strategy. Most important: Stay focused on not creating new debt as fast as you get rid of the old. Remember, never use credit to buy anything that you can’t afford to pay cash for.
Habit: I do not spend more money than I make. When it comes to getting your money right and gaining financial freedom, not spending more than you make is the most important thing you can do. Whether your household is in the top 1 percent American earners or one of the other 99 percent, learn to live within your means. Unfortunately, on average, Americans spend about a dollar and 25 cents for every dollar they earn. How? By not following a spending plan, also known as a budget, and by using credit as a substitute for the cash they don’t have.
Wealth is not a matter of how much you make, but how much you keep. So the person who makes $30,000 dollars a year and manages to save $5,000 of that income by the end of the year, is wealthier than the person who makes 3 million dollars a year but ends spending $4 million, creating an additional $1 million dollars in debt and liabilities. That’s how so many individuals with high incomes, such as many pro athletes, end up bankrupt.
Living beyond your means leads to financial disaster no matter how big your paycheck. That’s why you need to make living within your means not just a goal to strive for, but a habit today. This starts with reviewing your budget or creating a new one, that accounts for all of your monthly income and expenses. If the latter is greater than the former, you only have three options: make more money, cut expenses or some combination of both.
Commit to these three habits, and your finances will improve. Without them, the chances of you keeping any other financial commitments are slim to none. It’s about establishing good habits, not just chasing desired outcomes.
During Financial Capability Month, take advantage of the opportunities being offered. Make a pledge to yourself that you are ready, willing and able to take responsibility for your financial future. It is the first step towards achieving financial health. It is during times like these when great fortunes will be made by people who educate themselves and take action.
There is a saying, “For things to change, you must change.” The first step is always the hardest. Promise yourself to do just one thing at a time….and start today! By taking action today…Tomorrow will be a brighter day…filled with Bloom and Boom!