The past few years have been rough for many people where finances are concerned. I am one of those people, having endured three layoffs in two years, as well as a failed business. Needless to say my family has had to adjust and live on a much tighter budget than we had been accustomed to.
During this time we have learned some important lessons in how to strengthen our financial position for the future, so how can you strengthen your financial position for the year to come?
Create an emergency fund
This should be your number one priority. Put aside 10% of your paycheck and don’t touch it…for ANY reason other than an emergency. Can’t put 10% aside? Save what you can, but save something! Your emergency fund should equal about 3 – 6 months of your regular salary, preferably six months.
Create a budget
This is a must if you are to get a handle on your finances. By creating a budget you know exactly how much money you have coming in and going out. You should include everything you can including, but not limited to, your rent, your car payment, groceries, utilities, right down to the Starbucks grande double-hot mocha with no whip and no lid you are so fond of. Create a budget. It’s not as difficult as you think.
Speaking of Starbucks…
Are you a morning coffee drinker? Do you like to swing in to your local coffee shop each morning on the way to work for your shot of morning joe? Stop. It’s killing your wallet.
Look, we all like to grab a latte and hang out once in awhile. Hitting the coffee shop every morning on the way to work, however, is a drain on your finances. If you hit the java pit every morning you’re probably paying around $3.00 per day for coffee. That adds up to $15.00 per week. I know what you’re thinking: only $15.00? That’s not so much. What’s the big deal? The big deal is that $15.00 adds up to over $60 per month and almost $400 per year!
Enjoy an occasional excursion to the local Starbucks, but for your morning caffeine fix make your own coffee at home and save yourself a bundle.
Bring your lunch instead of eating out
Eating out for lunch every day is a sure budget-buster. If you’re spending just $5.00 per day for your lunch that adds up to over $100 every month, which is close to $1,200 per year! If you’re making $40,000 annually that’s 3% of your annual income! Add that to the coffee stop every morning and that comes to over $1,600 every year!
You would be much better served by packing your own lunch. You could buy bread, meat, cheese and veggies for a whole week for the cost of what one sandwich at Atlanta Bread costs you. What’s more, as an added bonus you have control over your portion sizes, meaning you can eat less and slim your gut while fattening your wallet.
Ditch the credit cards!
This is crucial to securing your financial health. Get rid of those puppies. Just cut them up and pay them off. There is nothing that kills your finances faster than carrying credit card debt. Do you really need that department store card at 30% interest? What do you need at the mall that you must absolutely have to have NOW that you can’t save up for?
Let’s say you have a credit card with a $2,500 balance and an 8% interest rate. If you paid $50 per month, all other things being constant, it would take you 5.6 years to pay off the debt, and you would have paid $551 in interest!
Miss a payment? Your interest rate just doubled or tripled, depending on your credit card agreement. It matters not if you were one day late or one month late, you’re going to be paying a lot more. That 8% interest rate just became 29%. If you made a minimum payment of 3% of the balance it would take you 50 years and $10,000 in interest charges to pay off that card.
Do you want to be a slave to the banks and credit card companies for the rest of your life? Get rid of them. Pay them off, cut them up, and close the accounts. You will not believe the feeling of freedom you have when you’re not making payments to Master Card, Visa, or any of the other dozens of available credit cards begging for your business.
Make 2011 the year you start getting your financial house in order
This is just a start to securing your financial future. It’s not as hard as some make it out to be. You owe it to yourself, and your family, to strengthen the foundations of your finances. Make some tough decisions and stick with them.