Commonsense Rules of Financial Well-Being

Commonsense Rules of Financial Well-Being

If you want to become wealthy in your lifetime, and the sooner, the better, right? To become financially secure, you have to spend a few hours once a month thinking and planning to make it happen.

People who put off financial planning or ignore its importance because they don’t have the time or assume they’re not good with money are making a costly mistake. Cash isn’t hard to understand, once you know the simple steps to gain control of your financial universe, and it doesn’t take that much time.

Rules For Success

Know where you stand. Before you plan, you must find out how much you’re worth right now.

Many people avoid doing this exercise because they don’t know how to do it. They are just too lazy. Or, they just don’t want to face the reality of their financial situations. All are big mistakes. Your net worth is like the gas gauge in your car, and no driver would ever ignore that.

The calculation is straightforward, and most people who do it are surprised to learn they are worth more than they thought.

You can determine you net-worth by merely making a list of your assets and another list of what you owe.

Don’t forget to include in assets the market value of your home, retirement savings or other investments and the cash value of your life insurance policy.

Do not include the market value of cars, furniture or personal possessions. They’re never worth as much as you expect, and you’re unlikely to sell them.

Debts include your mortgage, home-equity or car loans, and any credit card debt. Subtract your total debt from your total assets. The result is your net worth. Keep track of it over sex-mont periods. You’ll be able to see how your wealth is growing or shrinking.

If your net worth isn’t growing as fast as you had hoped, the problem is usually an item that can be found in the debt column. That could be growing faster than your assets. It’s time to evaluate where you’re spending your money and determine the cause.

Even though it is often a pain, you have to record how you spend your money on a weekly basis, if not daily for at least a month to see patterns and areas where there could be “leakage.” If you aren’t sure where you are spending all of your money every month, you can’t begin to develop a smart and intelligent plan for saving and investing for your future and your retirement.

Tracking bills that are the same each month such as your mortgage or car payment is easy, it’s the other stuff that’s hard, because often you don’t think about it, such as gifts, going out for lunch and/or dinner, even entertainment, all those expenses add up to a lot.

Helpful: For the next three months, keep a record of your purchases on an app on your phone, or if you prefer, in a pocket-sized notebook. It also may help to go through old checkbook registers and credit card statements to get an idea of where your cash is going.

If you have a computer at home, personal finance software programs such as Quicken are an efficient and user-friendly way to track cash flow. There also many apps you can download on your phone, but make sure you have a security password on your phone as you don’t want anyone to gain access of your financial records should you lose your phone. These programs can keep your checkbook and accounts organized and current, track expenses by category and compare year-to-year information.

Think and plan for tomorrow. Most people get stressed when you mention the importance of preparing financial and retirement goals. Because most people don’t usually even know what they are doing next weekend, let along 5-10 years from now. Just relax and breathe. Goals are about significant moments in your life. College tuition for your children, a vacation home, possibly early retirement. Do you want to make your dreams a reality? Then you have to make a plan. It is that simple.

Once you determine what you want out of life and the level of quality that is important to you, it is then when you can start to calculate how much money you are going to need to make it happen. You may also have to prioritize your goals since many can overlap others.

Slash those credit card balances. While you hear this often, I can’t say it enough. If you want to be financially comfortable and reduce emotional stress, you must reduce debt.

The typical credit card rate is over 18% which is exorbitant. There are some over 22%!. If your debt is draining your income, you might consider taking out a home equity loan to pay off your high-interest credit cards. This is not a wise financial move. While you will pay LESS in interest, you are securing your unsecured debt (credit cards) with a secured asset (your home). A better solution is to get your spending under control, pick up a part-time job or moonlight in your area of expertise.

You dug yourself into this hole, and you have to learn a lesson so you won’t do it again. A home equity loan is a life preserver, but it doesn’t teach you to swim. Get disciplined with your spending and savings because most people who use home-equities end up running up their credit card balances again.

See Also: Financial Common Sense

 

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