What Are You Working For?
"I owe, I owe, it's off to work I go." I saw it on a bumper sticker years ago. Ever wonder what you're working for? Are you closer to choosing work on your terms or does ever-mounting debt make stepping away seem like an eternity away? Today's choices affect your future choices. Living paycheck to paycheck can make the rat race a real grind. What amount of your paycheck is covering present day expenses? What amount of your paycheck covers future expenses (retirement)? If you're not careful the demands of the present will rob you of a decent retirement. Are you ready to start funding your future? Here is a step by step process to help you get there. If you've already completed a step then move to the next one.
- Have a written budget. You need to have a designation for every dollar you spend before the first bill is paid. If it's not on paper (or some kind of software) it doesn't count. You can't plan your future until you know your current obligations. Making your money behave will get you to your financial goals much quicker.
- Have an emergency fund of 1 month's expenses. There's no sense in planning for your future if you're not prepared for life's unexpected events. Not having an emergency fund means you will go further in debt when life comes knocking. You can open an online account such as www.ingdirect.com with as little as $25. Have you gotten your income tax refund yet? If not, this is a great place to park that money.
- Save a percentage of your income. Rome wasn't built in a day. SImply setting aside 1% of your income is a step toward a different future. As you eliminate debt or increase income you can begin to save more. If your employer offers a 401K this would be a good place to put this money. If a 401K is not an option, check into starting a Roth IRA. See my retirement options post for more information.
- Establish your priorities. What do you want to accomplish with your money? Making ends meet, having less debt, creating more income are just a few examples. You need to decide and write down what you want your money to do. If you REALLY want to be financially independent then you need to. 4A. Turn your priorities into goals. It's been said that goals are dreams with deadlines. It's also true that the road to hell is paved with good intentions. You need to be specific about what you want and when you plan to achieve it. Example: I will have my 1 month emergency fund completely funded in 6 months. 4B. Create an action plan for each goal. This involves specific actions you will take to achieve that goal. In the forementioned emergency fund goal, a specific action may be: 1) Open a savings account for the emergency fund; 2) Deposit $X a month into the account (Goal amount divided by 6).
- Regularly measure your progress. You need to review your progress to see where you stand. In reference to the above example, you might go online and check your account balance once or twice a month.
Having a plan for what you want to do with your money is very important. Having a plan in place will give you more confidence in managing your money. Regularly following a plan will begin to give you traction and hopefully move you toward a better future. A future that involves a plan to one day have your money working for you. That's a good goal in itself.
What additional advice would you give to someone who feels overwhelmed with their money obligations?
I like this topic.
Since you asked for advice from those reading your post, I’ll offer up.
For someone who feels overwhelmed by money obligations, I would first ask them to take stock of all the good things they have in their life. There is often much that each of us can be thankful for that we could possibly lose sight of when overwhelmed by major issues in one part of our life – financial or otherwise. Its not worth compounding problems by losing one’s health or relationships by focusing exclusively and negatively on financial issues. Take stock, and be thankful for the good things we do have.
That said, when someone does take the step to focus on finances, I wouls suggest making sure that cash inflow exceeds (or at least matches, at the outset) cash outflow. Eliminate unncessary expenses where possible, and make sure that you are paying down any consumer or other non-home debt that you have. Then fund an emergency fund, and try to get 6 to 12 months of expenses funded. Get used to living on a budget, and make sure that budget – once debt is paid off and emergency fund started – includes plenty of savings. Set aside as much of your income that you can reasonably set aside, and keep it for your future. You will need it, barring any unforeseen circumstances. And make this a habit, just like, say, brushing teeth in the morning. Paying yourself first should be a habit. Like anything else, its easier to make something a regular part of our lives when we make it a habit.
But the main thing, before acutally taking specific action, is to gain perspective in my opinion.
Great point about being gratfeul for what you have already. My wife and I need to sit down and do this ourselves. Things have been tight lately. You are spot on about devoting to saving. That is the beginning of wisdom.