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5 Ways to Gain Better Control of Your Finances
Published: 12/24/2010 by Renee Jones
Gaining control of your finances can be difficult if you have experienced financial setbacks in the past. Many situations of life cause individuals to experience financial hardships. However, it is never too late to gain control of your finances and ensure your financial goals are met. Ensuring your financial success rarely happens overnight, but with a financial strategy in place, it may be easier than you think.
1. Create a budget and stick to it - Creating a budget is essential for individuals wanting to gain better control of their finances. A budget gives you a clear view of your income and expenses. You are able to see exactly where your money is going every month. Creating a budget can be as simple as entering the appropriate data into a spreadsheet, or using personal finance and budgeting software. Personal finance software comes in many variations. You have the option of buying commercial software, or downloading free software from the internet. Once you create a budget, you can possibly eliminate any unnecessary expenses you may have. This will enable you to save more money, and reach your financial goals.
2. Save at least 6 months worth of living expenses - It is really hard to predict financial troubles. That’s why it is important to place money in a savings account on a continual basis. It may seem difficult at times to find money to put into your savings account, but financial hardships tend to make individuals understand the importance of saving money. According to the Pew Research Center, the savings rate averaged around 10% of disposable income from 1970 to 1985. Then the savings rate declined to nearly zero from 1985 to 2008. The recession brought financial soberness back to America, and the savings rate rose to 4% in 2009. According to estimates giving by the U.S. Department of Commerce, the savings rate was 6.4% in June of 2010. Financial experts suggest that individuals and families should save at least 6 months worth of living expenses. If financial hardships arise, you will be able to take care of your expenses until you get back on your feet.
3. Pay off your credit card balances - According to a survey taken by the Federal Reserve Bank in Boston, there are 608.9 million credit cards held by consumers in America. The Federal Reserve’s G.19 report on consumer credit stated that the average percentage rate on new credit card offers is 14.48%, and the average credit card debt per household is $15,788. Credit cards are useful if they are handled in a responsible manner. This includes paying off your balance at the end of the month to prevent paying interest charges. Paying off your credit cards that carry high interest rates will help you gain better control of your finances by saving you money annually. If you are paying only the minimum balance due monthly, you should consider increasing your monthly payments to decrease the amount of interest you are paying.
4. Spend Less Than You Earn - The low savings rate and high credit card debt in America suggest that many individuals are spending more money than they earn. It is impossible to gain control over your finances when you are living paycheck to paycheck. One of the keys to gaining wealth is to spend less than you earn. This may seem like common sense to some, but according to the data from the Federal Reserve, 40% of families spend more money than they earn. In essence, nearly 4 in 10 families are not in control of their finances.
5. Start investing your money - People invest their money with the hope of earning returns on their investment. Investment opportunities exist for aggressive or conservative investors. Long-term investing takes advantage of compound interest. Compound interest exists when your principal earns interest, and now your principal and interest is able to earn more interest. Before you decide on an investment, thoroughly research it to ensure that it aligns with your financial goals.
