The housing and economic crisis over the last 5 years has devastated the finances of millions of individuals and families. As a result, millions of people are being forced to start over in their careers, their retirement goals, repair their credit ratings, etc.
There has never been a more important time than now for each of us to work on educating and empowering ourselves to take control of our own financial future. If we want take control of our own personal finances, we need to start with the things that we can control in our lives. We cannot control the economy or the financial markets.
However, we can control our spending, limit our use of credit, set new financial goals, create a budget and look for creative ways to save money everyday to start rebuilding our finances. Here are some simple tips to provide you some ideas on how you can start working on rebuilding your personal finances.
Set New Financial Goals – Millions of families have experienced financial setbacks as a result of the housing and economic crisis. Therefore, it is essential that we spend some time evaluating our current finances and work on establishing some new financial goals. It is vitally important that we have specific written financial goals that inspire us to take action to achieve them each and every day. All of us have the ability to rebuild our finances and secure our financial future when we become inspired and committed to achieving our financial goals. This is an area of our finances where we should consider seeking out the input and guidance of a professional. An experienced professional can help us set specific financial goals and develop a plan based on our input.
Control Our Spending – We live in a consumer driven world that encourages spending in a million different ways. Many of our spending habits revolve around our lifestyle choices, choices that we make every day or week without ever considering the impact of these choices on our overall finances. However, over time our spending habits have a significant impact on our personal finances. The good news is that a large portion of our spending is discretionary. Therefore, we can have an immediate impact on our personal savings by controlling our spending. This is the first step to rebuilding our personal finances and our financial future. The single best way to get an accurate idea of your spending habits is to track every dollar you spend for 30 – 60 days. This is a simple exercise that can produce significant financial breakthroughs with our personal finances.
Limit Our Use of Credit – Our debt is a reflection of our spending habits. Therefore, if we start limiting or controlling our spending we will minimize our use of credit. Minimizing or eliminating the use of credit is critical if we want to rebuild our financial future. The most dramatic way to eliminate the use of credit and control your spending is a credit card fast. It is exactly what the name implies. You eliminate the use of credit and rely solely on cash for all of your purchases. This “cash only” exercise will make you stop and consider each purchase based on your available cash as opposed to simply swiping a credit card for any and all purchases.
Refinance Debt – Interest rates are at their lowest levels in decades due to the sustained housing and economic crisis. Therefore, there has never been a better opportunity than now to work on refinancing your mortgage debt, consumer debt, etc. If you are a homeowner, the record low rates provide an opportunity to dramatically lower your monthly payments. As a result, you could use the monthly savings to dramatically accelerate the prepayment of your mortgage loan and re-build your home equity that has been lost due to the housing and economic crisis. You could also use the monthly savings to payoff any consumer debt, fund savings and retirement plans, etc. If you have consumer debt, auto loans, student loans, etc., use this opportunity to shop around for lower rates to refinance your consumer debt. Every dollar you save in interest is a dollar you can use to pay yourself.
Rebuild and Protect Credit Rating – Credit Scores today are not only used for obtaining financing, but also for employment, insurance, renting a home, etc. Therefore, if we are truly committed to rebuilding our financial future, we will start with rebuilding, repairing and protecting our credit rating. The first step is to pull a copy of your credit report and review it for any errors or unresolved issues. If there are issues that need to be corrected, take immediate action by contacting the credit reporting agencies and/or the specific creditors to rectify the problems. If you are unable to resolve these issues on your own, seek out help from a reputable non-profit or agency. It is also very important to understand how and what impacts your credit score. There is an interview with a credit expert on FiscalLiteracy.com that provides some great information to help you understand what is in your report. You can find the interview under the Radio Show tab.
Fund an Emergency Fund – An emergency fund is a separate fund that is established and set aside solely to be used for the purpose of covering unforeseen expenses that come up in everyday life. An emergency fund will keep us from using a credit card to cover these expenses. As a result, we will limit our use of credit and minimize the risk of increasing our debt to cover these unplanned expenses. The typical guideline for an emergency fund is 3-6 months of your normal living expenses. Get started immediately by setting up a separate account, and be committed to funding it on a regular basis. In addition, consider having a garage sale or selling items online to generate some immediate cash to fund your emergency fund.
Resume Retirement Contributions – It is absolutely critical to fully fund your retirement plan each and every year. You cannot afford to postpone your retirement goals. The only way to reach your retirement and financial goals is by building your assets and savings over many years. If you have an employer sponsored retirement plan that provides matching funds ensure you are contributing an amount that matches their percentage of matching contributions. If you do not have an employer sponsored retirement plan, meet with a financial professional to establish an individual retirement account. The most important point is to make the commitment to contribute money to your retirement every month until you reach your retirement or specific financial goals for your retirement account.
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