- Taking control of your financial life can give you peace of mind.
- There are a few simple steps that will help you get control over your finances.
- These can include making a budget, creating a debt payoff plan, and making smart saving decisions.
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Getting control over your finances can have numerous benefits. You can accomplish important goals, reduce the chances of ending up in credit card debt or deal with your current debt for good, and have the peace of mind of knowing you’re prepared for whatever life brings your way.
But, while there are advantages to effectively managing your money, it can be difficult to know how to make your funds work best for you. The good news is, there are only four steps you need to take to finally take control of your finances for good. Here’s what they are.
Take stock of your situation
If you want to take control of your finances once and for all, you need to know what the current state of affairs is when it comes to your money. By looking carefully at what you are spending, how much debt you have, what financial goals you’re working toward, and what you need to do to accomplish them, you can move forward with making a solid plan.
To take stock of your situation, you should:
- Make a list of all the debts you owe, along with the interest rate and outstanding balance.
- Track your spending for at least 30 days to see where your money is going.
- Look carefully at how your spending matches your budget if you have one.
- Review any financial goals you’ve set and see if you’re on schedule to accomplish them.
- List your assets, including any savings.
This will give you a big picture view of your current financial life, so you’ll know what changes if any, you need to make.
Make a budget
If you don’t already have a budget, making one is crucial to taking control of your finances. By developing a budget you live on, you can ensure you’re prioritizing your goals and spending money on things that add the most value to your life.
Your budget will serve as the foundation for the rest of your financial plan, as you can ensure you’re devoting enough funds to doing important things like repaying debt and preparing for a secure future.
Create a debt payoff plan
If you’re in debt, chances are good you’ll want to repay much of what you owe. Paying off certain low-interest debts with long payoff times, such as mortgage loans, often isn’t the best idea. But if you have high-interest debt such as credit cards or payday loans, you’ll want to pay that off ASAP.
To decide what debts to focus on paying off, consider what your return on investment will be. If your interest rate is 3% (like on a mortgage), then your ROI is limited to the saved interest. Since you can earn more than 3% with other investments, the debt shouldn’t be included in your early payoff plan.
For the debts, you do want to pay off, focus on repaying those with higher interest rates first. Pay the minimum on all your outstanding obligations, then send as much extra as you can toward your costliest debts until they’re paid off in full.
Maximize the value of your savings
Finally, you’ll want to make sure you’re saving appropriately for the future. This means you should have specific savings goals, including investing for retirement as well as for big purchases such as a house, home maintenance costs, or vacations. You should know how much to invest each month to accomplish each goal on your desired schedule, and should ideally automate contributions to your investment accounts so you can hit your targets on time.
You’ll also want to make sure you have the right accounts for each type of savings, including a high-yield savings account for your emergency fund which needs to be accessible, as well as tax-advantaged retirement accounts.
By taking these four steps, you can take full control of your finances, make sure your money is used wisely, and get on the path toward a more secure future.