Now you have abandoned your plan to eat a healthier breakfast and spend an hour at the gym every day. Across the country, self-improvement resolutions have failed. Instead of succumbing to guilt and frustration over what you may not have done this year, why not focus your energies on a goal that can be achieved at any time of year – financial fitness?
More Americans care about their financial fitness than their personal health, and twice as many decide to improve their financial health than their physical well-being, according to a recent online poll by American Consumer Credit Counseling. But taking control of your finances does not must be limited to the first few months of the year – you can begin any time.
“Many people know they should save more, spend less, and cut debt, but they may not be sure how to do it,” said Trey Loughran, president of the Personal Solutions unit at Equifax. “Starting with a detailed strategy is the first step to increasing financial fitness.”
These five steps can help ensure this is the year you finally get your finances in order:
Add up all of your debts.
You know you owe, but do you understand how much? Americans tend to underestimate how much debt they’ve on credit cards, mortgages, and car loans, according to a study by the Federal Reserve Bank of New York. Knowing how much you owe will provide you with a starting point to start planning how you’ll pay it off.
Add up all of your monthly expenses.
Here too, many people don’t have a solid understanding of how much they spend in a month. Collect all of your monthly bills – utility bills, gas costs, insurance payments, grocery receipts, restaurant and coffee shop receipts, etc. Add all of them up. Did the tally surprise you? Now separate the bills into those that you must pay monthly and those that are discretionary. You must pay your utility bills, but do you actually need a coffee shop every morning? Discretionary spending will provide you with an idea of where you have room to change your spending habits. Now compare how much you spend in a month to how much income you generate. If you are spending less than you are making, good for you – you can skip to Step 4. If you are spending more than you are earning, skip straight to Step 3.
Cut expenses.
Overspending can land you in debt if you depend on credit to make up for monthly shortfalls. You can try to increase your income by getting a side job or a higher paying job, otherwise you can cut unnecessary expenses. Evaluate your expense list from Step 2. What can you live without? Are there “fixed” expenses that are literally flexible, like cable bills or cellular phone bills? Look for places where you can save money and match your expenses to your income.
Set a budget.
Now that you understand how much you owe, earn, and spend every month, it is time to create a budget. A personal or household budget is a framework for your future financial fitness. A budget helps you anticipate and manage cash flow so you can meet your monthly obligations, set aside money for the future, and work to pay off credit card debt.
Watch your credit.
While everyone seems to be entitled to view a copy of their credit report from each credit reporting agency for free at least once yearly, not everybody does. You can request a free credit report yearly atwww.AnnualCreditReport.com. If you are working towards a particular goal of economic fitness, such as paying down debt, building an emergency fund, or saving for a down payment on a home, it makes sense to monitor your credit regularly. Review your credit report and credit score so you can better understand how your past credit behavior has impacted your finances, and how future credit decisions may impact your life as well (please note: the credit score provided may differ from the actual credit score used by the lender). You may additionally want to consider signing up for a credit monitoring product, which can provide you with a warning to important changes in your credit file and also help protect you from identity theft.
“Financial fitness is an achievable goal, no matter when you start,” says Loughran. “Fortunately, it’s easy to find many resources to help, from financial planners and investment advisors to online resources like the Equifax Finance Blog (www.blog.equifax.com). With a little knowledge and persistence, it is possible to make 2014 the year you finally get into top financial shape.”
