Your Personal Finances

Do you have control of your personal financial situation, or are you are still in debt and without a plan? Either way you can use this simple six-step plan to get you headed (or keep you going) the right way. One caveat though: like any other tips you have read, these will only help if you if actually used.


Step One - Track Expenses

Spend two months writing down what you spend every penny on each day. A simple exercise like this can enlighten you as to where large chunks of your income go. It can also show you very clearly how little things add up to a lot. It's even possible you'll be spending less by the end of the first month, just because you're so aware of the money going out, so you naturally cut expenses. Categorize your expenses and see how much is going to "eating out," "renting movies," "electric bills," and any other areas.


Step Two - Cut Costs

Once done with step one, you can use the information gathered. Start finding every way you can to cut those expenditures one by one. That may mean giving up a few things which are less important to you than your financial future. It may just mean finding better ways to do things, without sacrificing much at all. To turn down the heat while at work doesn't hurt. Find cheaper insurance, groceries, restaurants and more.


Step Three - Apply Savings to Debt

Once you're spending less, you should have some money left over each month. Apply it to any debts you have, starting with those that are at the highest interest rate. Once one debt is paid, apply that "extra" money towards paying off the next one. Do this right and you'll be living just as well, but spending less to live that way, and getting out of debt at the same time (assuming you weren't living too far beyond your means to begin with).


Step Four - Find New Income Sources

Look for new ways to make some extra income, starting this search while you're working on step three. Take an extra shift at work each week or two, ask for a raise, look for a better job - or a fun second one. Why fun? There has to be some motivation to make this work.

This could also mean starting a small business on the weekends or in the evenings. Consider your skills, connections, knowledge and things you own or control. For example, the rent from an extra room in your house could provide an extra $4,000 per year, or if you are single you might cut your rent in half by sharing your apartment - this is like having extra income.

Step Five - Start Paying Cash

Things are cheaper when you pay cash for them. You can negotiate a better price initially when paying cash, and you also don't pay interest. You may have to wait and save for some things (like the next car), but you live on less, or get to buy even more of the things you want in time. A credit card can be convenient, but if you do use one pay it off every time the statement comes in.

Step Six - Invest

By controlling personal expenses, generating new income, getting out and staying out of debt, you should have a more coming in than going out each month. Invest this money. Even if you're not comfortable with investments like mutual funds or stocks, at least find the highest-interest bank account you can. You can save the money to start or invest in a business as well.

These ideas probably aren't new to you. But if you actually follow a simple plan like this with your finances, you'll certainly be more financially secure and more relaxed in the future - and the future isn't that far away.