Too many people are insufficiently educated about their personal finances. Shining a spotlight on the importance of financial wellness enlightens and empowers people, through education and providing tips and resources. I personally believe that education leads to clarity, clarity leads to confidence, and only with confidence can one achieve peace of mind.
What is financial literacy? In broad terms, it is understanding how money works, and how you apply that knowledge to your own life. As we progress through life, we encounter new situations, and how the world deals with money is ever-changing. Here is one of my favorite quotes from Suze Orman: “A big part of financial freedom is having your heart and mind free from worry about the what-ifs of life.” By being proactive, you can exercise good habits while making gains throughout the year.
This month I challenge you to take some time to “spring clean” your finances.
Can you imagine financial freedom? I can – and that’s one way to achieve it! Visualization and setting goals can create abundance, which is much more than having money. It’s the freedom to be who you really are and do what you really want in life. Enjoying these rewards is simply a matter of increasing your education, determining where you are now, and where you want to go.
I know it can be scary to make change happen, but think about it: if you don’t take action now, what does your financial future really look like?
Here are seven activities to get you started:
- Lay It All Out – Before you start cleaning, get the lay of the land — just like how you might spread out everything you had stored in your garage or closet to see what you’re dealing with. Look at the big picture of your spending and saving. People usually know what’s coming in, but rarely what’s going out. Understanding that, and making even the slightest change, can add hundreds of thousands of dollars in savings accumulation in the future. Now you can start purging unnecessary items or expenses.
- Run Your Credit Report – Your credit score can impact everything, from your mortgage rate to your credit card approvals. It can even affect your competitiveness as a job candidate. Tax season is an ideal time to get a credit report and check for errors. You can get one report from each of the credit bureaus, for free, from AnnualCreditReport.com. If you discover mistakes, dispute them, and contact the company that issued the account.
- Set Your Goals – Short-term goals are those you’d like to accomplish within one year (e.g., control debt by paying off credit cards). Mid-term goals are within five years (e.g., make a down payment on a new home mortgage). Long-term goals are five years or more (e.g., save for retirement). Take charge: write down, clarify and prioritize your goals.
- Review Your Monthly Budget – Once you set your goals, allocate your money accordingly. Budgets are boring, and I get that, but when was the last time you reviewed yours? Things change constantly, so you should periodically review your budget. Create a quick chart of your average monthly net income, and deduct your monthly expenses. Are you staying within your current income? If not, how are you making ends meet? Are there ways to reduce your expenses or increase your income?
- Evaluate the load – How much do you owe, and how much are you paying the lenders in interest? Comparison shop what you’re paying in interest with what’s available now. Consider refinancing your mortgage, or asking your credit card company for a lower interest rate. If you want to take advantage of the 0% balance transfer offers that are all over the place, make sure you’ll be able to pay off the transferred balance in full before the promotional period expires — and resist the temptation to run up new debt on the old card.
- Chip away at the debt – The question has always been whether to pay off the balance with the highest interest, or knock out the smallest bills first. Although starting with the highest interest rate makes mathematical sense, researchers found that people are more motivated, if they knock out a small debt, rather than a chunk of a bigger one. Paying off one debt gives you the momentum to keep chipping away, until the entire balance is history.
- Dust Off Your Monthly Bills- Much of your spending might be fixed. Rent is rent, after all. But in some cases, bills are flexible. Are you paying for services without even knowing it? Companies sometimes make mistakes Check your utility bill for inconsistencies; so compare your electricity bill to the actual meter. You may be able to lower utility bills by using less energy. For example, unplug appliances when you’re not using them. The amount you can save varies depending on the types of appliances, and how many you have plugged-in. Review your Internet, phone, cable, and other bills to see if you’re paying for services you no longer use (example, landline). Ask the provider to switch you to the current promotional pricing being offered to new customers. Check in on any other recurring bills you’re paying — things like Netflix, magazine subscriptions, and memberships. If you no longer use them, why keep paying for them? Figure out how to cancel, and start saving that money.