Tuesday, February 19, 2008

10 Quick Steps to Get Your Financial House In Order

Everyone should have their financial house in order. Whether you need to bug out at a moment's notice, a financial disaster strikes, or you (God forbid) die, the impact of having a firm financial foundation for both yourself and your loved ones cannot be overstated. Here's ten quick steps to get you there:

  1. Have an emergency fund. Keep $200 cash in your wallet, $500-$1000 cash in your home, and $10,000 in the bank.
  2. Get rid of debt. Pick the debt with the lowest balance and hammer away at it until it is gone. Move on to the next higher balance debt, get rid of that, and so on. When your consumer debt is gone, move on to your auto and mortgage debts.
  3. Make sure you are well insured. You should have home, health, life, and auto insurance at a minimum.
  4. Review your spending. Obviously if your spending habits are putting you in the poor house, you will need to make significant changes, however everyone should evaluate how they spend money. Reduce the unnecessary, frivolous spending (lattes, junk food, etc) and if you must spend money buy items that appreciate in value (firearms for example).
  5. Cut your expenses. Arrange your expenses, and your life, around how YOU want to live not how the neighbors, family members and the Jones' live. If you don't watch much TV, cancel cable. If you are online all day at work, consider canceling your home Internet service.
  6. Increase your income. Start a low/no investment needed side business. Get a part time job. Ask for a raise. Change jobs for a more lucrative opportunity. Do all of the above.
  7. Have a plan. If you have specific goals, you will have a target to aim for. Getting financially fit is great, but there is more impetus to succeed at this endeavour if you have a specific goal or goals you are working towards.
  8. Invest. Invest in yourself (education, skills, tools), invest in your children (education, skills), and invest in a well-diversified portfolio (real estate, stocks, bonds, CDs, mutual funds, etc).
  9. Make it a habit to save money. Americans have a savings rate of -.4% which is unsustainable (duh). Make saving your change, saving money from each paycheck, and saving unexpected monies a regular habit. And don't spend it.
  10. Plan for your retirement and eventual death. Both of these events will have a significant impact on the finances of you and your loved ones. Start planning now to prepare financially for retirement by making sure you will have the money available to sustain you for decades after you quit working. Also plan for your death...have a will, power of attorney, money to pay for your funeral, and the knowledge of how to pass on your assets without incurring a huge tax debt for your children.

1 comment:

  1. Good points. When the collapse comes, you don't want to be fighting heavy debt at the same time.

    And why go into debt in the first place? Pay as you go and save save save!