Clean Up Your Finances & Reach Your Goals - A Few Simple Starter Steps
Eighty percent of people ages 30-54 believe they will not have enough money put away for retirement, according to Statistic Brain. Have you thought about your retirement fund? If not, it’s time to dust off the old budget and make it work for your future.
The first step is taking stock of your assets. Grab a pad and a pen, and let’s get started.
Knowing Your Assets
Putting something aside for the future begins with taking stock of the present.
- Income
Start by writing down your income. Separate your gross income, everything you earn, and your net income, or what you have left after deductions. Be sure to include all income sources. - Savings
Now, sort through your bank accounts: savings, mutual funds, etc. If your savings include an “emergency fund,” make a special note since that will be fluid. - Property
Next, you’ll need to know the current value of your home and any other properties. Look at recent sales of comparable properties in your area. Take stock of how old your home is and what repairs or updates are needed. - Other Assets
Finally, take stock of valuables such as jewelry and antiques, as well as stocks, bonds, and other such assets.
Fixing Your Shortfalls
Next, take stock of your costs including utility bills, mortgage, donations, insurance, food and other necessities, additional spending, etc. Remember to include regular quarterly or annual bills and any subscriptions.
Don’t forget to add in loans, credit cards, and other types of debt. You may want to put these in a special section so you can work on reducing them.
When it’s all written up, add it together. You may discover that the number is higher than you expected. If bills eat up most of your income, you’ll have less money to set aside for the future. It’s time to fix that shortfall.
Ask yourself these questions:
- Where do I overspend? If you’re stumped for answers, read this article on why we overspend and how to stop at the Daily Worth.
- Can I stop using my credit cards and other lines of debt? The answer to this should be yes, even if you’ll need to plan in your budget accordingly.
- What do I need and what I can let go of? Separate your needs and your wants. You may need your car to get to work, but you don’t need a department store credit card.
Fixing Your Budget
Now that all your finances are organized, it’s time to set up your budget. The Balance notes that a budget is an important tool to help you plan, track, and save your money. They also advise to have as much detail as possible, so make sure you have not missed anything in the data you’ve collected.
Here’s what to do next:
- Write down necessary financial goals.
Plan both short-term (pay off credit cards) and long-term (college fund for kids, retirement) financial goals. Writing down goals is the best way to keep them. Here are more ways to estimate your future budget from The Nest. - Write your long-term financial dream goal.
If you create at least one long-term “dream” goal, it will help motivate you to stick to your budget. Be specific. “Have $100,000 in savings” is a measurable goal you can work toward, but “get rich” is not. - Create a cushion fund.
Save up to 3-6 months of expenses for an emergency fund.
To create your budget, set goals for the 3 items above. Next, take all your income and expenses and see what you have left over every month. (If you have nothing left, you’ll need to eliminate some unnecessary spending.) Now, divide that amount by what you need to reach your goals and create a timeline.
It might take some time to reach your goals and you may need to seek out more and better income opportunities. As long as you keep doing the work with the future in mind, you can eliminate your debt and plan for a secure retirement. It all starts with your budget.