Organizing your finances can be a daunting task. And because of your fears, you’ve been avoiding the process for quite some time. But it must be done if you desire to achieve the financial freedom you’ve been dreaming of. Simplicity is the key. Here are a some big steps that’ll help you create a clear action plan:
1. Get Organized
Do you have piles and piles of old statements from service providers, creditors or financial institutions lying around? If so, grab a shredder and purge. Doing so should take away some of the anxiety that accompanies getting your financial life in order. And for those items you need to keep, consider purchasing a small filing cabinet and organizing the documents by type. To determine what to keep, for how long, and what you can toss, check out this chart on USA.gov.
Also, opt-in for electronic statements; they’re usually available and eliminate the frustration that arises when you need to access an important document at the drop of a dime.
2. Conduct an Audit of Your Financial State
Next, you’ll need to assess where you stand financially in order to come up with a feasible plan to take your finances to the next level. To do so, create a comprehensive list of your assets and liabilities. This should include any retirement accounts, securities, income and outstanding debt balances you have on hand, just to name a few.
Once you’ve done so, list any sources of income you receive each month and the estimated expenditures. (For the latter, track account activity for at least one month to get an accurate figure).
3. Implement a Spending Plan
There are tons of software programs to choose from, or you can do things the old-fashioned way. Regardless of which method you use, here are a few key points to keep in mind:
• Every dollar should have a name on it before the month starts. The more stringent the plan is, the higher the chances of compliance.
• If your outputs exceed your inputs, you are left with no choice but to make cuts. Many ignore this pertinent tidbit of advice because they figure as long as the bills are paid, nothing else matters. That’s until a financial emergency arises.
• The plan should be helping you build a cushion, pay down debt and accomplish any goals you have in mind, simultaneously. If not, you won’t be motivated to stay on track.
4. Fund Your Safety Net
Life happens, and you may need a financial infusion to get out of the hole. And there’s no easier way to send your finances haywire than robbing Peter to pay Paul. That’s why the first order of business on your spending plan should be paying yourself to ensure your emergency fund is receiving the boost it needs each month.
5. Create a Debt-Management Plan
Before you decide to aggressively attack the outstanding debt balances, bring any delinquent accounts current. This is important to minimize the damage done to your FICO score for recurring delinquencies, not to mention the excessive late payment fees, interest and penalties. If you’re having a tough time formulating a plan due to limited income, consider making cuts to the variable expenses in your spending plan.
6. Capitalize on Existing Resources
Be proactive and take advantage of all the free tools at your disposal. A host of financial institutions offer online bill-pay as an added perk of being a member or for a small fee. In additional, there are spending tracking features to help you identify problematic areas and make adjustments moving forward. If you’re an AOL user, you’re granted complimentary access to Lifelock’s identity theft protection services, which can protect your personal information from fraud and preserve the financial freedom you’ve worked so hard to achieve. Most importantly, remain vigilant of your account activity at all times to confirm the activity is accurate.
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