Getting in control of your finances is the best way to control what happens in your life; however, many people don’t have a clue where to start when it comes to their financial life. If this sounds like you, try these basic steps to take control over your spending.
Start by setting up a budget. List your income as well as the maximum amount you pay for utilities and the minimum you need to pay for your debts. Using these numbers will allow you to determine if you can afford your current standard of living. After this, it will be possible to use any extra money to pay off debt faster, invest, or spend on non-essentials.
After balancing your basic expenses with your income, most people will have additional money left over. This money should be split into four categories; investment, short term savings, debt repayment and entertainment. Deciding how to divide money between these four categories, however, can be tricky.
Unfortunately, after putting together a basic budget some people might realize that they do not make enough to cover their minimum bills every month. Fortunately, there are several different ways to solve this problem. There are a number of credit card debt solutions that can reduce or eliminate your credit bills. In the case that these credit card debt solutions do not work for you, however, it will be necessary to re-evaluate your basic expenses. Finding a roommate, finding a cheaper apartment or taking steps to reduce utility bills can all help to bring your budget back in line.
In general, it is recommended that people use as much income as possible to pay off debt, especially debt with high interest rates. At the very least, it is a good idea to relinquish investments that do not return as much as the interest rate on any debt that you currently owe. If you have a lot of debt, try to dedicate at least half of your “extra” cash towards paying it down.
Of the remaining fifty percent, the amount that is invested, placed in short term savings, and used for entertainment will depend a lot on your current savings, age, and lifestyle. People who are within ten years of retirement will need to dedicate at least thirty percent of their extra money to long term savings, if not more.
The same people who already have significant assets, however, may not need to save as much. People with thirty or more years left until they retire may only need to put ten percent of their extra money towards investments.
Most likely everybody would benefit from putting money aside into an additional short term savings, also known as an emergency fund. Ideally, try to increase your short term savings so that you can pay your minimum expenses for at least a year. Of course, getting your savings to this level may take several years, but it is important to start putting money aside as soon as possible.
