There isn’t a man, woman, or child in America that by now that hasn’t heard a million times about how necessary it is to start practicing fiscal restraint and keeping expenses down. Many families will usher in New Year’s 2011 un- or under-employed and in massive debt. Unfortunately, these are often the same families that are so overwhelmed by their financial problems that they have a tendency to make those problems worse by ignoring them. But it doesn’t have to be this way, and you can finish 2011 in a much better financial situation than the one that rang in the New Year.
Step 1: Admitting You Have a Problem
Finances can seem scary and overpowering, especially to those who have never struggled before. Finding yourself in huge amounts of debt is intimidating enough to make the strongest of us turn away in shame. But dodging those creditor’s phone calls and throwing out most of your mail unopened is not going to make the problem go away. It may be uncomfortable or feel shameful coming clean about your problems, even if only to yourself, but it will feel so much better when you admit it and take steps to move forward.
Step 2: Building a Budget
It astonishes me how many people still don’t have a budget that they live on. Look at your receipts or bank statements and figure out where your money is going. Make a list of necessary expenses (rent, utilities, food, etc), super important expenses (savings, car payment, insurance), strong desires (internet, cable, pet expenses), and unnecessary expenditures (eating out, movie rentals, new shoes). Make a budget using these categories as your priorities; if you can spend money on everything, figure out how much for each. If not, choose where to cut out unnecessary expenses.
Step 3: Embrace the Savings
Make sure that at least some money goes into your savings account every month or paycheck. The ideal is 10-20%, but if you can’t afford that, just put in what you can afford. While building savings is important, the habit of putting money into it is the most important thing at this time. Next year, you can start beefing up your savings account; this year you start getting in the habit of financial responsibility.
Step 4: Devote a Year to Following Your Budget
Follw your budget. FOLLOW YOUR BUDGET. Follow your budget. This is difficult, but you can absolutely do it and it is the single most important thing you can do to ensure your financial future. If you eliminate all unnecessary expenses from your budget and keep your other expenses within your budget, you will have equipped yourself with the best skill imaginable. Spend a year ‘making do’ with what you have and even when you can afford to buy more, you won’t find it as necessary to do so. You also will be prepared to scale back as necessary.
Step 5: Pay Down That Debt
Put every extra cent you have to work; that’s why you’re committing to a year of spending anorexia. When you put each extra dollar towards your debt, you begin to actually move forward, rather than spin your wheels in the vicious cycle of minimum balances. Start with whatever you have the highest annual percentage rate on, then as you pay that account off, keep putting as much money towards the next highest.
These steps to financial control will make 2011 a very challenging year. The pay-off, however, will be when you ring in 2012 in better financial shape than you ever have been.