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Getting Your Finances
Under Control:
Making Ends Meet With Money to Spare
Where does it all go?
Saving a portion of each paycheck is a challenge for many Americans. There are bills to pay, mouths to feed and fun to be had. Most Americans understand the importance of saving money, but with so many different demands on our finances, it isn’t easy.
Getting your finances under control can be the first step to decreasing stress in your life. It may be a long and difficult process, but when you no longer lie awake at night, thinking about how you’ll pay your bills, it will be worth it.
Whether you know it or not, you’re constantly prioritizing your spending and making decisions about what to buy. By developing a plan, you’ll feel more in control of your financial situation, better evaluate your purchases and know where every cent goes.
Assess your situation
The Truth Will Set You Free
One of the best rules for taking control of your finances is to be honest with yourself. If you’re unsure of how your money is spent and what your priorities are, the first task is to find out! This means taking pen to paper, reviewing old records and making a chart of your monthly expenses.
Start by listing your regular monthly bills — i.e. your housing, food for your family, etc. Some bills must be paid each month. Some vary from month-to-month, such as clothing, home maintenance, car repair and entertainment. Be sure to tailor your chart to your life, such as a category for pets. For variable expenses such as food, make an estimate of your average monthly spending for that category. For expenses that are predictable but don’t come monthly—an insurance premium for example—figure your total for the past year and divide by 12 for a monthly amount.
To download an expense worksheet, click here.
That Mysterious “Miscellaneous”
Once you’ve listed your regular bills, you may find you have a large “miscellaneous” category or “cash” category. It may be the key to answering the question, “where does it all go?”’
Keep track of absolutely everything you spend for a month. Ask for receipts or bring along a notebook to keep track. By the end of the month, you should have an accurate picture of how you’re really spending your money. Compare what you really spend to your estimate of monthly spending. Was your estimate close?
With this information, you’ll be able to decide if the way you’ve spend money in the past is how you want to spend your money in the future. It will also help you identify areas where you need to cut back.
Financial Action Plan
There are many action plans that can help you get your finances in order. Here are a few to try:
- Seek the knowledge of others! There are counselors who can help you set up a financial plan for yourself. For free or low-cost budget counseling and financial guidance from the
Consumer Credit Services
call 1-800-388-2227 or
visit www.cccs.org to find the office nearest you.
- Don’t pay some bills in full and others not at all. Make at least a small payment on every bill. This will help lower finance charges.
- Always keep in contact with creditors. If you can’t pay a bill in full or will be late with a payment, call and negotiate a payment schedule. Let them know when a payment will be late.
- Look at your monthly categories. Are there some areas that you can cut without a lot of sacrifice? This is where knowing what makes up your “miscellaneous” category helps. Make a plan but be prepared to adjust as you find what works.
- Focus on paying off debt. It doesn’t make sense to put money into a savings account earning 4% or less, if you’re paying 10, 15 or 20% interest on credit cards.
- Pay off debt with the highest interest first.
Saving your Cents Sensibly
Build an Emergency Fund
Once your debt is under control, your first savings objective should be building an emergency fund.
Pay your savings first.
When you pay your bills—the credit cards, gas, water, electric, cable, and phone bills—add one more item to that list: savings. Put your savings at the top of that list and pay your savings first. Many people think they will save whatever is left over, but this is the wrong order, and most of the time it doesn’t work. Add savings to the top of your regular expenses. Even if it’s only a small amount, saving every month will add up faster than, “I’ll do it when I can.” Take advantage of services from your bank that automatically withdraw money from your checking account and transfer it to a savings account.
Experts recommend having enough on hand for six months of living expenses.
This emergency fund should be easily available (such as in a savings account)—not locked away in an account that has penalties for early withdraw. Also, avoid putting your emergency fund into an investment account, such as a mutual fund, that may not be at its highest when you need it most.
Saving Strategies
If you are anything like most Americans, every dollar is precious. Do your best to get the biggest and best bang for your buck. Use these sensible savings strategies to help you make the most of every dollar you earn.
Fun Ways to Trick yourself into Building a Nest Egg
Start your stash. Rather than an envelope, cookie jar, coffee can or whatever you can get your hands on, set aside the same amount in the bank every week. The trick: don’t count it, don’t spend it. Hide it where no one — including yourself — will be tempted: in the safety of your bank.
Become your own bill collector. Just paid off a big debt like a car loan or child’s tuition? Keep making the payments — this time to yourself by depositing the same amount in your bank, suggests Barbara O’Neill, a professor of family and consumer sciences at Rutgers University. “It’s a chance to ramp up your savings,” she says. This also works on a smaller scale. If you recently switched phone companies or discovered a flat-rate plan that’s saving you money every month, put that cash aside in your savings jar.
Convert a bad habit into a good one. Give up cigarettes—or even cut your habit by half—and put that money in the savings drawer, says O’Neill. If you drop a pack-a-day habit by half, you could easily bank well over $100 by spring.
Bank “extra” paychecks. Get paid weekly or bi-weekly? This tip is for you. Most people set up their budgets to accommodate two to four paychecks every month, depending on their pay schedule. But several times a year, you get an extra paycheck in the month. (Hurray!) So instead of heading to the mall, pretend you never saw it. Put it in a savings account or put it in your rainy-day fund. Having a fund with a few extra checks has really helped over the years, says Jones, also a mother of four, who’s been using the trick for 18 years to pay for everything from unforeseen car repairs to emergency doctor and dental visits. “Emergencies always come up,” she says. “That’s guaranteed.”
401(k) pays. If your employer offers a retirement savings plan, join immediately.
Keep savings and spending money separate. Your savings money should not be too easy to get your hands on. The harder it is to get to your savings, the less likely you are to spend it.
Watch out for finance charges. The interest on a four-year car loan can add as much as $5,000 to the cost of a $20,000 car. Pay off any loan in the shortest amount of time possible.
Individual Development Accounts (IDAs) Grow Your Money Fast. IDAs are special savings programs that allow you to receive matching funds—up to eight dollars for every dollar you save. This money can be used for education and training, home ownership, business development and asset building. IDA programs vary by state. Visit www.womenwork.org for more information about our IDA education project or download our IDA tip sheet for more information.
Saving Resources
Web sites to help you get started:
Books to help you get started:
- Get A Financial Life: Personal Finance In Your Twenties And Thirties, by Beth Kobliner
- Play Like a Man, Win Like a Woman: What Men Know About Success that Women Need to Learn by Gail Evans
- She Wins, You Win: The Most Important Rule Every Businesswoman Needs to Know by Gail Evans
Seven Savings Strategies
to AVOID:
- Do not drive more than 10 miles to save $1 or less.
- Do not skip medical and dental check-ups.
- Do not postpone needed maintenance and repairs.
- Do not tackle large projects yourself, if you do not know how.
- Do not buy food that will go bad before you can use it.
- Do not cancel needed insurance coverage. Instead, look into increasing your deductible.
- Do not keep appliances that are well past their prime.
You may find that getting back on the right financial track can be difficult at first. Don’t give up hope. With proper planning and the willpower to stick to your budget, you will find yourself on the path to a healthy financial future. And, you might have some money to spare!
Tip sheet last updated 7/05
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