Thursday, March 17, 2011

How to Clean Your Financial House

Many people spend time on the weekends on during the week cleaning their house, putting things in order, throwing away things, organizing, updating, replacing and moving things around. Some people do more extensive cleaning of their house when spring arrives. Some people clean their house and donate unused items to charity. Whatever the case – everyone cleans their house or place where their live but do you clean your finances?

Many people don’t know how much money they earn, how much they spend or how much debt they owe. Organization is the key to getting your finances in order and cleaning your financial house. Approximately seventy percent of Americans are living paycheck to paycheck. In some instances people live paycheck to paycheck because they don’t know where their money is going. Here are 9 ways to help you clean your financial house.

1. Fix Credit. Get a copy of your credit report at least once a year. Get current on all late bills and dispute any errors.

2. Create a budget. Create a budget or spending plan to determine how much you earn and how much you are spending. Include savings in your budget. Ensure that everyone in your family follows the budget. Track your spending daily, weekly or monthly.

3. Reduce expenses. Reduce your expenses by determining areas where you can reduce spending by buying more needs vs. wants such as bringing your lunch to work, shopping at discount stores or buying generic brands.

4. Pay down debt. Pay down debt and keep credit card balances at 20% or less of the limit which also helps increase your credit score. Don’t open any new accounts or incur any additional debt.

5. Establish an emergency fund. Create an emergency fund to cover bills and monthly expenses for 9-12 months to prevent using a credit card for unexpected expenses.

6. Plan for retirement. Plan for retirement and contribute 10-20% towards a retirement fund each month. Contribute to a retirement account through your employer or make automatic contributions to an IRA if you are self-employed or if your employer doesn’t offer a retirement plan.

7. Pay bills. Pay bills on time or before the due date to maintain good credit or increase your credit score. Pay bills online or through automatic deduction to save money.

8. Assess needs. Determine your needs for insurance such as life, health, disability and long-term care. Make adjustments as needed on a yearly basis or when a life event change occurs such as death, long-term illness or childbirth. Bundle services with the same company to save money.

9. Organize. Organize all bills, financial statements, debt, and loans in separate folders. Create a bill calendar to identify when each bill is due or create a list of keep track of bills. Get a file cabinet, cash box or accordion folder to store receipts. Tally receipts daily, weekly or monthly and track in your budget.

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