‘Plan, Organize, Prepare’
Money can indeed be very tricky to deal with. When used wisely, there are a number of benefits that money offers. On the other hand, mismanaged money can lead to a world of problems for an individual.
In this post, we will take a look at the top steps to follow so as to get on the path of financial preparedness.
(We recommend you get a journal or notebook and title it something like ‘Financial Planning’. As you consider the following steps below, write down thoughts, questions, and ideas. These entries will help you to act, and work towards financial preparedness. The following are suggestions, you alone are responsible for your finances.)
GET OUT OF DEBT
The first and foremost step to be followed in order to be financially prepared is to get out of debt at the earliest. Thanks to modern financial instruments, many people land themselves in heavy debt. With debt on hand, you will be obliged to pay it even if you desperately need to spend money elsewhere. It is always a wise idea to keep debt levels low and manageable.
Focus your attention on the smallest debt first. Don’t get overwhelmed with other past-due accounts, just keep those on the minimum payment. Once the smallest debt is taken care of, move on to the next, and so on. This method will help you build momentum, and before you know it, you will find your debt disappearing.
Picture debt as a hole in the ground. Some have a deep hole of debt, others not so deep. As mentioned above, take the first step to get out of debt. Don’t forget to have patience in the process.
USE CREDIT WISELY
There are three kinds of debt, consumer debt, secured debt, and business debt. Consumer debt covers all those purchases that are made for consumable items. For most people this is mainly stored on their credit card. Anything that does not fall in the other two categories will most likely fall into consumer debt. The goal is to completely eliminate consumer debt. Secured debt covers things like your home, car, etc. There's an asset that is tied to the debt. The goal here would be to keep this debt as low as possible, and have a plan to eventually eliminate it. Business, or investment, debt is using other people's money to help build something of value that will return money to you. Purchasing a rental home would be in this category, as would purchasing a business or financing growth. The goal is to make sure this debt is providing a good return. Even this kind of debt could cause you problems in an emergency though, so treat any debt as a possible roadblock for true preparedness.
While it may be tempting to use up credit so as to purchase items beforehand, credit should always be used up with care. Credit proves to be excellent in times of emergencies and one should always have a healthy portion of credit unused. Typically, it is recommended that at any point of time, you should have used up only one third of your total available credit, but we do not recommend debt to be used for consumable items.
Take time to educate yourself on wise credit use. Use a debit card, or cash if you can. When it comes to a credit card, it is much easier to use, because at the moment its money that has not been earned. Don’t get lured into the trap of heavy credit spending.
Instead, work to increase your available credit and decrease your debt. You will feel much more stability and be at peace. Write down questions for yourself. Why do I want to increase my credit? What do I need a credit card for? Answer these questions in your journal. When it comes to financial decisions, often look back to your answers and goals in order to stay focused on the ultimate goal.
LIVE WITHIN YOUR INCOME
One of the most financially unstable decisions that people make is to spend more money than they earn. Even if this is a small difference, over time, the difference between spending and earning accumulates. You should never exceed your income levels and should always look to live within your means.
Don’t fall for the mainstream conception that you need to be at a certain status level in order to fit in. Learn to increase your savings and decrease your expenses. This takes time, effort, and dedication. But it will be of much benefit in the future.
In order to achieve financial preparedness, you will need to prepare a budget according to your income, your needs and your lifestyle. You will need to prepare as exhaustive a budget as possible and you will need to stick to it at all times.
Start with something simple. Sit down, and write last month’s expenses. Compare those to what you have earned, and in addition, what you have saved. Again, strive to decrease your expenses and increase your savings.
*Have fun. Although there is much focus on lowering expenses and saving more, it is crucial you budget a small amount for healthy activities with your family. After all, the reason for budgeting is to make sure your family’s financial future is secure.
Once you actually know your spending/saving habits, take it to the next level. Continue to work on your budget and you will find that it will benefit you greatly.
Expect the unexpected. Accidents and emergencies come with no warning and the best possible measure that can be taken for them is to set up an emergency fund in advance. As there are many different kinds of possible requirements for emergency cash, you are advised to build two separate funds – one for short term and the other for a longer term.
If you find it difficult to save extra cash for this fund, have a garage sale. Go through your house and find items that you rarely use, or could live without. Use the cash received from these items to start your emergency fund.
An emergency fund is not for an investment or a vacation. This fund will give you a sense of security and peace. In fact, if you don't have an emergency fund you may want to reconsider that next vacation.
Over time, everybody gains access to some surplus amount of funds. These surplus funds should always be used wisely and one should never be tempted into using surplus cash for frivolous purchases. One of the best practices is to invest surplus funds as emergency funds or otherwise.
With new technology and ‘the next big thing’, remember your overall financial goals. If you have surplus funds, make decisions on where they should be used, based on your financial goals.
While this is not really something which enables you to save up or spend less, you are urged to have all your financial documents organized and in place. This way, whenever you are in need of funds or monetary assistance, you can proceed quickly, thanks to having everything required ready on hand.
A small fireproof safe is highly recommended. Make sure that your spouse, or someone you trust also knows of its whereabouts, content, and security. Some keep their important document in a bank or a vault. Decide what may be best for you, and carry out your decision
There are a large number of professional services which assist individuals with their finances. You could consider making use of a financial planner or accountant to get on the path of financial preparedness.
You might be surprised, just by asking family and friends about seeking professional guidance when it comes to your finances. Seek others who may be well financially prepared, and learn from them.
Reach out with confidence. Don’t be embarrassed of you current financial situation. As a matter of fact, that is exactly why we have financial professionals. The choice is yours to make your financial future as bright as possible.
Follow the advice that financial professionals may give you. Be teachable and ready to make proper changes.
MONEY IS A TOOL
This may take some change in thinking, but once done, the benefits are manifold. Money is not the be all and end all of life. Money is only a tool, a financial instrument which can aid us in living a better quality of life. Once this is understood, you will see your financial situation in better light.
Those who might be so focused on money are missing the point. Focus on the bigger picture instead. Write out your financial goals. Keep focused on those goals and work hard to achieve them. Take control of your financial future, don’t let it take control of you.
There are those who claim to have a relationship with their money. Shouldn’t your relationships be with your family and friends? Resist emotions when it comes to your money. Money does matter, however it does not matter near as much as those close to you.
There are times when you must zoom in and focus on your finances, but the majority of the time, zoom out. See the big picture. Remember your financial goals and work hard to be financially secure.