4 Steps To Control
Your Money
Everyone I have ever spoken
with claims to have the desire to be in control of their money.
Most of these people will admit that they don’t feel
like they have very much control over where their money is
spent and a surprisingly large number tell that their money
is in control of them. The people who feel like their money
is out of control are not the same people who don’t
know how to stop spending when they are out of cash, or when
their checking account is perpetually overdrawn.
If your money is controlling
your life, you may have the feeling that you get up in the
morning and go to work for the sole purpose of bringing home
a paycheck and signing it over to the mortgage holder, the
auto finance company, the utility providers, your eldest child’s
college tuition office, your youngest child’s youth
activity director and every door-to-door child pitchman selling
school fundraising items.
How can you tell when your
money is out of control? You fell as though it is simply getting
up and leaving your wallet whenever it darn well feels like
it. So what are you to do about your money and controlling
where it goes?
1. Know where you stand
Anytime you are going to go
change anything in your life, you have to know what it is
that needs changing. This is the same whether you are talking
about your finances or your weight.
What you need is a snapshot
of where your finances are right now. The only way to do this
is to create a Net Worth Index.
There is only one way you
can create a Net Worth Index – and that is honestly.
Drop the kids off with your in-laws, sit down with your spouse
and start writing everything down on paper. You can use a
computer spreadsheet if you want to.
Start by listing everything
you have that can be sold, and how much you could reasonably
expect to get for it. Do not claim your 19th Century rocking
chair from Grandma Hopscotch is worth $500 if someone who
isn’t sentimentally attached would only pay $100.
While you and your spouse
are taking inventory, remember to include watches, diamond
earrings, boats, vacation time-shares, stocks inherited from
Uncle John and your retirement accounts. List everything and
its’ sale value. When you do things like Certificates
of Deposit and IRA’s where there is substantial penalty
for early withdrawal use the face value. For our purposes
we’ll figure you won’t be taking the money out
until it has matured.
Now that you have inventoried
everything of value and totaled up what it is worth, do the
same for your debts. Add in loans from family, friends, banks,
businesses, and mortgage companies, past due accounts with
the Gas Company and all credit card balances. This is not
the time to “forget” someone you owe.
Subtract how much you owe
from how much you own. This number is your Net Worth and should
be a positive one, though it could be kind of tiny. You won’t
need to use this number again until next year when you calculate
your Net Worth Index again.
If your Net Worth Index reveals
a negative number you are definitely doing something right
by working to bring your money under control. What you’ll
have to do is follow these four steps, and if necessary taking
drastic measures such as a second job, selling valuables,
or even selling your current house and moving into a smaller,
less expensive dwelling.
2. Develop Your Goals
After you know where you stand
financially, you need to decide where you want to go. This
involves setting some reachable targets or goals.
Goal setting is not very complicated
and in this instance, we are referring to the overall target
of gaining control of your money. To do this requires a few
measurable small goals, sort of like baby steps.
Your first baby step is to
create a plan to pay off your debts. Look at your list of
debts again and find which one is the smallest. This is the
one you want to pay off first. Pay your minimums on all the
others, and then pay everything you can extra a month on the
smallest debt.
When it is paid off, take
all the money you had paid on the smallest and add it to what
you are paying on the second smallest. Keep doing this until
you are out of debts to pay off. It doesn’t matter if
your debt is for a house or for your soda pop at the corner
gas station Following this plan you have created to pay them
off is your first baby step.
The second baby step will
be the creation of an Emergency Savings Account. This account
needs some money added each month until you have accumulated
enough money to equal six months of your income. The money
you set aside here will help you avoid debt when you have
to make a surprise car repair or meet the deductible for your
child’s appendix operation.
Your third baby step will
be found in the next paragraph, under the heading of Spend
with a Plan.
3. Spend with a Plan
Now that you know you are
serious about controlling where your money goes, and you are
seriously doing something about your debt it is time to make
a plan. A spending plan is comparable to a budget in the same
way an imported pickup compares to an F-150. When you use
a spending plan to guide your finances, you know critical
work is getting done.
You need to know what your
take home, or net, pay is. Start with your gross monthly salary
and deduct all taxes and Social Security contributions. Next
you should subtract how much you tithe or contribute in charitable
giving each month.
The amount you have left is
your Spendable Income. The next thing to pay for is your house
expenses and your grocery bill – include only the food
you buy in a grocery store to prepare yourself, no eating
out or fast food here.
The very next thing to subtract
is your debt payment. Once this is taken out, you are left
with the money you can spend on everything else you require
to live on for the month – also known as your Disposable
Income. Write down everythingwhat all you spend money on and
see just how much it costs you.
Since it wouldn’t do
any good to be working at paying off your debts if you are
adding to them every month, you had better find a way to cut
your spending down below your Disposable Income or else you
will never have control of your money.
Working with your spouse you
can decide how to buy store brand things for a fraction of
the cost, do without the monthly beauty saloon treatments,
cancel club memberships and eat at home instead of dining
out 3 nights a week. Perhaps you could even take your lunch
to work instead of eating in the cafeteria every day.
The key is to find fun ways
to decrease your spending amounts. Involve the children and
find small ways to reward them for their practical money saving
ideas, after all, they are part of the family and can help
too.
Once your spending is under
control and kept below the level of Disposable Income available,
start to enjoy life. While you are probably not quite as materialistic
as the Jones’, you can enjoy a great quality of life
than they do as they run controlled by their money.
4. Clean Up Your Clutter
I’ve found that after
setting debt repayment as a goal, wrangling the spending into
line and in general improving my life by gaining control of
my money there is too much stuff in my life. Not activities,
but material things.
This is a good time for you
to have a garage sale and clean out your closets, the attic
and wherever you have hidden all that stuff over the years.
The money you raise could be applied towards your smallest
debt to speed along its repayment.
Another thing you can do is
look for larger things in your life you can dispose of that
will help you reach your goal sooner. Do you have a vacation
home you haven’t taken a vacation to for several years?
What about that second or third car – can you sell it,
pay off the loan against it and use cash to outright buy a
good used car?
You might think it will hurt
to make large changes like this, and it might. Once you have
taken the step though, you will feel an easing of the burden
on your shoulders.
These four things are just
the tip of the iceberg when it comes to controlling money.
This short over view is enough for you to get started thinking
about ways to begin taking control of your money, but it doesn’t
begin to be a step by step guide. Those kinds of guides are
out there, but they are too thick to include here.
Using this as a quick start
guide to controlling your money will get you pointed in the
proper direction. As you progress you’ll find dozens
of ways to write your Spending Plan, a hundred more goals
to set, and plenty of ideas on how to cut costs. When you
are debt-free and telling your money what to do, instead of
following it around, you’ll be a happier person.
| Authors Details: Roger Sorensen Web
Site |
More Articles On Money
(Money
Tree Pt 1)
(Money
Tree Pt 2)
(Money
Tree Pt 3)
(4 Ways
To Make Money)
(3 Astonishing
Facts About Fast, Easy Money)
(4 Steps
To Control Your Money)
(The
Trick To Money Pt 1)
(The
Trick To Money Pt 2) |
