Money

5 Baby Steps Towards Taking Control of Your Finances

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finances (Image: iStock.com/mapodile)

 

A good indicator that it’s time to take control of your finances is if you are living from paycheck to paycheck, and you are feeling financially stressed. For those who think that financial stability is out of reach, the National Foundation for Credit Counseling notes that even if your current situation seems hopeless, there are steps you can take now that will put you in a better financial position.

Here are five simple steps that you can take:

1. Live Within Your Means

Simply put, don’t spend more than what you make. To accomplish this, put the credit cards away.  Many well-meaning people resort to living off of credit, when faced with a financial crisis, digging an even deeper financial hole.

Instead, try living on a cash-only basis.  People who do this typically spend 20% less, according to NFCC. They are able to do so without feeling deprived. They buy what they want but do so without spending frivolously, because of their heightened level of awareness.

2. Put Yourself First

A dollar is critical. Respecting money is really what it’s all about. A dollar is not a throw-away, because it can eventually lead to $50, and then $100.

Look to adjust your lifestyle. You might have to forego that five dollar cup of coffee. However, if you can make coffee at home, that is five to seven dollars’ worth of savings. You can also bring your lunch to work instead of spending $10 to $15 outside of the office. Figure out where to start cost cutting and saving. Whether you end up with $50 or more, invest that $50 each month.

3. Track Your Income

The best way to identify areas to cut costs is to have everyone in your household who spends money track their spending for 30 days.  At the end of the month, come together to review the findings and determine where money is falling through the cracks. Make adjustments to your spending so that your budget reflects exactly where you want your hard-earned money to go.  You will never be totally in control of your finances, until you follow a monthly budget.

Make adjustments to your spending, so that your budget reflects exactly where you want your hard earned money to go.  You will never be totally in control of your finances, until you follow a monthly budget.

4. Invest in What Your Know

Are you hesitant about investing? Then start with something fun. Go to your closet and inventory the designers you own more clothing from. If they’re publicly traded, you should get their stock.

If you are willing to drop over $300 each on several pairs of Adidas Yeezy kicks by Kanye West or Michael Kors handbags, then you should be willing to purchase Adidas or Michael Kors stock. Likewise, if you go to Starbucks every day, you should own shares of Starbucks.

5. Seek Financial Freedom

You need a written financial plan, and you need take action. If you know you want to retire early or that you want to put your children through college, quantify that. How much does that cost? What would it take for you to get to that point? How much do you need to save—each month, every year—and for how long?

Answering those questions is part of becoming financially free. Managing money and taking control of your finances equals freedom.