7 Tips for Improved Personal Finances
The following tips are from the introduction to
Money Tracker 2-Year Budget & Finance Log.
Copyright 2014 by Mark Walters
Tracker Book LLC
Recently, I took stock of my financial situation and realized I was not proceeding on the right financial path; that I was dangerously going further into debt and not on the upward trajectory of improved finances and better savings. I reflected on what I could do better to improve my financial condition, and I resolved to design a few charts on my computer to better manage my budget and finances so that I could turn my situation around once and for all.
I put together some charts into what became Money Tracker 2-Year Budget & Finance Log, and the following are some excerpts from the introduction to my book that I’d like to pass along that I believe will help others get back on the right money track. Note that I am not a professional financial advisor; I am simply an average person struggling with money, did a little bit of research and put together a financial log book, and from this project I’d like to share some of my findings.
1. Money Awareness
One of the most important factors to successful money management is to have a higher awareness and closer accounting of finances. This means checking account balances periodically and recording the information in a ledger or computer program; determining your financial net worth (total savings minus total debts) at regular intervals to see if you are on the right path or if your path needs adjustment. This helps you to know exactly how your income compares to your spending each month.
Financial formulas and computations can quickly get complicated, but personal finance really comes down to one simple formula: the amount of money coming in (income) minus the amount of money going out (spending). This is why drafting and keeping to a budget is so important. By creating a budget, it proves we have done the math to determine how much money we have coming in each month, how much we are spending, and--most importantly--the amount we have left over, and whether this figure is adding to savings or dragging us into debt.
2. Reducing Credit Card Debt
Stopping credit card debt and working diligently to pay off credit card balances is a vital step towards getting on the right financial footing. Credit card debt insidiously sucks our money away like a pool drain that is always open and depleting our reserves, but there are some simple but effective techniques we can use to stop the credit card leaking and refill our savings pool. First, we need to completely stop using credit cards so that we don’t make any more purchases on credit. No need to cancel the account, which may negatively impact one’s credit score and leave a person without access to money should a true emergency arise, but one needs to be firm in resisting any temptation to use the credit card at all, even “just this once.”
A debit card allows one the safety of not carrying cash with the same convenience and accessibility of a credit card. The worthwhile benefit to the debit card is its psychological effect. By witnessing the amount being deducted from our checking account immediately before our eyes, we realize more fully the impact this spending has upon our finances, and one is much less likely to spend extravagantly. Another tactic for reducing credit card burden is to work towards paying off higher-interest rate accounts first. This step will help reduce monthly finance charges that drag one deeper down into debt.
3. Psychological Influences
Compulsive spending, or spending during times of emotional stress, can contribute further to deeper debt woes, but it is really just one example of how more deeply rooted psychological and philosophical belief systems about money can influence us in ways we aren’t always consciously aware. We may have at one time been subconsciously influenced by something a friend or relative said, or by something we heard on the media, that voiced a certain perspective about money. Such thoughts can include negative perceptions of wealthy people as self-centered and greedy; keeping to what one believes is a higher spiritual plane to be humble, to shun the evils of money, or to even view financial success as a sin.
Short of professional psychological counseling, we ought to engage in some meditation and personal self-reflection where we examine our belief systems about money and recognize how our attitudes could be keeping us down in a place of destitution. Our journey to arrive at a financial place blessed with abundance and freedom from worry can be detoured as well if we let ourselves be constantly caught in the trap of keeping up with the neighbors. This never-ending desire to possess things stems from a delusion that our total value as a person is inextricably linked to the commercial value of our possessions.
4. Boosting Income
Besides diligently working to cut expenses, the other major benefit one can make to improve his or her financial condition is to boost income. This can come from an increase in pay at one’s current job, the seeking of a new job with more pay, or the supplementing of one’s income in taking on another part-time job. Job searching is something that undoubtedly calls for hard work, persistence, and resilience. Constantly monitor job boards regularly for opportunities in your field that may arise.
Continue to enhance your skills to make yourself more valuable to your employer and your marketability should another opportunity arise. Take a continuing education class, read books and make use of other valuable resources at the library. Continue to network and build relationships. Become more proficient at a hobby or skill and turn those avocations into a for-profit small business. There is no limit to the degree to which we can improve our marketable skills and talents, so long as we have the drive, persistence, enthusiasm, and discipline to manage time.
To be sure, if one has significant credit card debt to repay, financial advisors are quick to point out the difference in interest rates between a high-rate credit card and a low-paying savings account, and based on this discrepancy, it is clear one should be focused primarily on paying off credit card debt. Still, getting into the habit of savings, even a modest amount, will help one get into a healthy practice of building a savings nest that grows over time. Many financial experts recommend individuals have at least three months of living expenses available in savings, and even better, six months. Having this savings cushion will prevent one from falling further into debt during a time of unexpected unemployment, illness, or other outstanding circumstance.
Setting up an account specifically devoted to savings and having a set amount of money automatically deducted each month helps us to save consistently and reliably. One benchmark is to save at least 10% of take-home pay each month. Some call for boosting this amount to 15%, with 10% devoted specifically to retirement and 5% devoted to personal savings.
6. Online Resources
Setting up online automatic bill payments with various financial accounts will ensure that one doesn’t miss important due dates, incur late fees, and lower credit score. Although some may continue to be wary of internet transactions, most of the vigilance for identity theft should be focused on offline stealing, from paper or card handling. Organize website bookmarks with a folder devoted specifically for all of your financial sites so you can check your account balances regularly and easily and record the information in your financial ledger or computer program.
7. Live Frugally
To curb unnecessary or elaborate spending, it is worth reviewing the wide range of books and websites devoted to the topic of living more frugally. When it comes down to it, it all goes back to the simple equation of income minus expenses. If one simply keeps a closer eye on monthly budget, one should know naturally what one can and cannot afford. Do shop around for the best prices, but don’t allow coupons or special deals to give you an excuse to spend needlessly. Engage in more low-cost or free activities, such as walking in the park, bicycling, and visiting free cultural museums and libraries.
Works Consulted and Recommended
Chatzky, Jean. “The Difference: How Anyone Can Prosper in Even the Toughest Times.” New York: Crown Business, 2009.
Goodman, Jordan E. with Bill Westrom. “Master Your Debt.” Hoboken: John Wiley & Sons, 2010.
Hill, Napoleon. “Think and Grow Rich: The Landmark Bestseller--Now Revised and Updated for the 21st Century.” Revised and expanded by Dr. Arthur R. Pell. New York: Jeremy P. Tarcher/Penguin, 2005.
Kobliner, Beth. “Get a Financial Life: Personal Finance in Your Twenties and Thirties.” New York: Fireside, 2000.
Mundis, Jerrold. “How to Get Out of Debt, Stay Out of Debt, and Live Prosperously.” New York: Bantam Books, 2012.
Tyson, Eric. “Personal Finance for Dummies.” 7th Edition. Hoboken: John Wiley & Sons, 2012.
Ventura, John and Mary Reed. “Managing Debt for Dummies.” Hoboken: Wiley Publishing, 2007.
Winget, Larry. “You’re Broke Because You Want to Be.” New York: Gotham, 2008.
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