Recalculate Your Income And Expenses
The first step in creating a new budget is recalculating your income and expenses so that the information on your new budget is as accurate as it can be. Recalculating your income will take into account any raises or additional sources of income that you have obtained since the last time you created a budget. The new numbers will also take into account any price increases or changes in your expenses that have recently occurred. Make a list of all sources of income and expenses and use this list as the basis for your reworked budget.
Set Specific Financial Goals
You should make sure that your reworked budget has specific financial goals for you to work towards. Specific goals help you narrow your focus to the things that will be financially beneficial for you in the future and gives you good reasons to stick to your saving plan. Write down a list of your top five goals that will make you feel more confident about your financial situation by this time next year and set deadlines for reaching each of these goals. Setting down the specifics will make it easier for you to stay on track.
Reduce Fees Where Possible
Some things that used to be free now require the payment of a fee, which adds to your expenses and reduces your disposable income. While reworking your budget, try to identify any areas of spending where additional fees are charged and try to reduce these fees as much as possible. In most cases, your best course of action is to contact the companies that are charging you these fees and ask to have the fees waived. If this is not possible, you may want to consider switching your services to companies that will not charge you as much in fees.
Micromanaging Your Finances
People that like to micromanage their finances attend to every little detail of their finances personally. They keep track of every penny that is going into and out of their bank account and regularly check their accounts to determine their balances and review their transactions for mistakes. People that tend to micromanage their finances spend a significant amount of time on their financial tasks each month, but generally have the tasks broken down into daily and weekly actions so they are not spending a long stretch of time on the tasks. The people that choose to micromanage their finances often find it soothing because it reassures them that they are on the right track with their finances.
Automating Your Finances
The people that automate their finances want to get their financial tasks done with the least amount of effort so that they can focus on other things. They may not like to do financial tasks or may not feel comfortable with their level of expertise in handling financial tasks, so they let software programs do it for them. Online banking has made it very easy for people to automate various financial tasks, including paying bills and making deposits into savings accounts. After taking the time to set up the automatic transactions, the person will need to check their accounts several times a month for a few minutes to make sure that everything is still progressing according to plan.
A Little Bit Of Both
Most people adopt a little bit of both financial management styles to manage their finances effectively. In my case, I micromanage my spending and my checking account while automating my savings and retirement accounts. Automating my savings ensures that the transactions get done in a timely manner and I eliminate the chances that I will spend the money on other things just because it is in my checking account. I also like to know where I stand on spending money available in my checking account because every so often I like to surprise my son with something special for doing everything that I ask of him and the best chances are often unexpected. There is no right or wrong answer as to which method you choose, as long as it helps you keep your finances in check.
Most financial advisers say you need a diversified portfolio of stocks to get the most for your money. However, they rarely tell you how many stocks you need before your risk is optimally spread around. Well, the sweet spot appears to be owning between 10 – 30 separate individual stocks.
How Many Stocks Is Enough?
In his 1930s classic, The Intelligent Investor, Benjamin Graham said that the magic number was somewhere between 10 and 30 issues. In 1968, John Evans and Stephen Archer concluded that 10 stocks were enough. And in the 1970s, Burton Malkiel said 20 stocks will do in his book A Random Walk Down Wall Street. Other more recent studies have shown that the benefits of diversification tend to decline after 30 stocks. So, the sum total of about 70 years of research indicates you need between 10 and 30 separate individual stocks.
Diversify Across Market Sectors
Being adequately diversified is more than just the number of stocks in one’s portfolio. To be properly diversified, you need exposure to the entire market and its known components. This typically means spreading your assets around so you have some exposure to the following market components:
1. Market capitalization (Dollar value of shares outstanding)
2. Domestic stocks (U.S. Equities)
3. Foreign stocks (Non U.S. Equities)
4. Value vs. growth (Low price vs. high growth in profits)
Typically you would also want to spread your stocks among the following economic sectors:
1. Telecom Services
4. Consumer Staples
5. Health Care
7. Information Technology
9. Consumer Discretionary
For more on managing your portfolio, check out our postings on:
Hide The Credit Cards
Not using your credit cards while you are attempting to pay off your credit card debt may seem like a no-brainer, but you would be surprised at the number of people that continue using their credit cards while attempting debt elimination. It may be because they have run into an unexpected expenses and didn’t have any savings available to pay for it because they were putting all of their disposable income towards paying off their debts. In other cases, it is because the person wants to continue earning points or perks for using the card. In both of these cases, the continued use of the cards will make it harder for the cardholder to pay off the debt. As you begin your debt repayment plan, take your credit cards out of your wallet and hide them in a secure location so that you will not use them during the process of getting out of debt.
Change Your Habits
Most of us have a number of habits that we could easily change to be more effective at paying off the credit card debt we have incurred. For example, instead of waiting to pay your credit card bill at the end of the month with the money you have left over, you could set an amount to pay at the beginning of the month or every paycheck to ensure that paying down your debt is a high priority. You can also read more books from the library and put your cable bill money towards debt repayment or sacrifice your daily latte to the cause. There are many different ways to come up with more money for repaying your debts and your personal preferences will dictate which ones you choose.
Pay More Than The Minimum
You will never get out of debt if you only pay the minimum amount required to keep your account in good standing. In most cases, it would take you more than ten years to pay off a credit card balance by making minimum payments and you would have paid thousands of dollars in additional interest charges in the process. If you cannot pay more than the minimum on all of your debts, focus on the one with the highest interest rate first. You can pay down each credit card in turn until all of your debts have been eliminated.