Some people are natural savers. They live within their means and amass wealth easily. For others, it can be pretty difficult to get their financial lives in order. Fortunately, this guide will show you how to get your finances in order in 10 easy steps.
Make a Commitment to Your Savings Plan
One reason it’s hard to get your finances in order is because you never make a commitment to them. If you don’t plan on getting your finances under control, why put effort into doing so? You have to commit yourself, or else nothing will change. This step may be the most important one.
Order a Credit Report
One way to get your finances under control is to understand where you stand. This means that you need documentation of your credit history. You can acquire a credit report online from the three major companies’ websites: Equifax, TransUnion, and Experian. They are free once per year from each company or if you’ve been denied a loan in the last 60 days.
Open a Savings Account
Another way to get started with your finances is to open up a savings account. Keep this account separate from your regular checking account. When you are ready to get started on your savings plan, start putting some money into this account. You can arrange automatic withdrawals from your checking to keep on track with regular payments.
Conquer Your Debts
One of the first things that you need to do is take a look and see what’s outstanding and how much those debts are costing you. Next, write down all your current debts, what you owe on them, and the interest rate. Now make a list of your income sources and how much money is coming in every month. Your goal should be to pay off all your debts, starting with the loan that has the highest interest rate, which you will then aggressively pay down until it’s gone. After that, focus on the debt with the next highest interest rate, and so on. You should also consider debt consolidation loans as a way of getting most of your debt into one manageable payment. If you do consider a debt consolidation loan, make sure you understand the terms. Origination fees and a long repayment term could make the loan cost more in the long run.
Create a Budget and Stick to It
Now that you’ve got one debt paid off and your savings account filled up, it’s time to create a budget. First, take your income and subtract the amount you’ll be saving each month. This subtracts all necessary bills (rent/mortgage, car payment, utilities, childcare costs, etc.). What you’re left with is discretionary spending money that can go towards paying off debts or saving for specific short-term goals (like a vacation). Any remaining money should go to your savings account.
Set Up An Emergency Fund
At this point, you should have one debt paid off, and your savings account is well-stocked. Now it’s time to establish an emergency fund to protect yourself if anything goes wrong. Set up an automatic withdrawal from your checking into a savings account that will get transferred the next business day. Aim for a pretty high number (around 3-6 months of living expenses), but start small if you have to. Once this account is filled, make it a goal to add more money every month until you’ve achieved the recommended levels.