We’re past the holiday season and into a brand new year. That means, it’s time to start off on the right foot when it comes to your finances.
Get your money right for the new year with a few simple, easy to follow steps. Your goal: To have more wealth at the end of this year than you did when it began.
1. Review Your Credit Reports and Scores
It’s time to pull your credit reports and all scores from all three major credit reporting agencies. Hopefully, you didn’t damage your credit by overspending on holiday shopping. Now’s the time to see where you stand. Go to annualcreditreport.com for the free reports you’re entitled to once a year.
This is your opportunity to clean up any errors in your reports that may be hurting your credit scores. If you reports are accurate and your scores still need improvement, consider getting help from a certified credit counselor. Go to DebtAdvice.org for help finding a qualified professional.
2. Calculate What You Owe and Who You Owe It To
Now, calculate all of your debts, including your mortgage, auto loans, and credit card balances—to the dollar, if not to the penny. Make note of how much of your available credit is currently in use, and what interest rates you are being charged on outstanding balances. Having a total for what you owe will help you get your money right and focus on reducing debt in the new year.
3. Determine Your Net Worth
Next, it’s time to do your net worth statement by adding up your assets (what you own) and subtracting your liabilities (what you owe). Your goal is to get that number out of the negative and as far into the positive as possible this year. To get your money right is to consistently increase your net worth over time.
4. Establish Your Spending Plan for the New Year
Now create or update your spending plan, also known as a budget, for the new year, setting goals for reducing debt, increasing savings and boosting your net worth. Your budget must include all monthly expenses as well as income from all sources.
If the former exceeds the latter, you are living beyond your means. You’ll have to cut expenses, find new sources of income, or some combination of both to get your money right. Then, adjust your spending plan accordingly.
5. Stick With the Plan
To get your money right, you must commit to your spending plan. Review and adjust it on a monthly or quarterly basis, taking into account new expenses and/or income, as well as lifestyle changes (such as relocating to a new city, changing jobs, or getting married) affecting your finances.
Go online to get access to calculators to help you with budgeting, figuring out your net worth, and setting financial goals. One good online resource is to help you get your money right are the calculators at BankRate.com.
Black Enterprise Executive Editor-At-Large Alfred Edmond Jr. is an award-winning business and financial journalist, media executive, entrepreneurship expert, personal growth/relationships coach, and co-founder of Grown Zone, a multimedia initiative focused on personal growth and healthy decision-making. Follow him on Twitter at @AlfredEdmondJr.