Monday, March 23, 2015

Be the CEO of Your Finances


If you mismanage your finances these bad habits can carry over in other areas of your life. When your finances are out of balance so are other areas of your life such as your career, relationships, family and health. Managing your finances properly requires discipline, attention to detail, organization skills, strategic planning, sacrifice, and logic skills. These skills are also useful in other areas of your life. Being the CEO of your finances reduces stress, anxiety, sadness, frustration and anger and helps keep your life in balance. Become the CEO boss of your finances by following these 8 steps.

Track Spending
Spend less than you earn. Create a budget to track and control spending. Subtract your monthly expenses and debt from your total monthly income after taxes.  If you have less than5% left over make some adjustments.  Make your budget flexible to accommodate for unexpected expenses and include savings goals.  Set short-term and long-term goals such as paying off a bill and saving for a down payment on a house. Create an emergency fund to cover monthly bills and expenses for 9-12 months. Balance your checkbook and write down or verify every transaction, including check card transactions and trips to the ATM. Spread spending for large purchases over several months to ease the burden. Reduce spending by 30% to reduce financial risks. Downsize or downgrade your lifestyle if you are experiencing a financial crisis.  

Get Coverage
Insurance is a form of protection against loss, damage or theft.  Insurance should provide enough to reimburse for loss or damages. The basic types of insurance everyone should have are: health, life and disability especially if you have children. Health insurance is needed if you develop a health condition or need to go to the emergency room. Disability insurance is used if you have a short-term or long-term medical condition that prevents you from working and ensures that you still continue to receive a paycheck, usually at least 60% of your salary. Life insurance is used in the event a family member dies and should at least be enough to cover burial expenses.

Insurance needs grow as you get older so ensure your coverage and beneficiary information remain current. Buying insurance will save you money in the future and help you get over any financial crisis you may experience.  You may not see the immediate benefit of buying insurance but in the long run you will be glad you did. 

Boost Income
Go back to school to further your education to boost your salary. Many employers offer free or discounted training so take advantage.  Keep a copy of each certificate in your employee file. Skip getting a tax refund and adjust your withholdings to get your money throughout the year.  Get an additional stream on income such as a part-time job, invest in a profitable business or start a business to boost your income.

Monitor Credit
Keep good credit. Whether right or wrong - credit is used to judge your character and affects your ability to get hired for a job, get insurance or get approval for credit.  Pay your bills on time or setup payment arrangements to maintain a good relationship with your creditors. Review your credit report at least once a year and at least 3 months before making a big purchase such as a car, home or starting a business.

Know Your Worth
Know your worth. Know your worth in your job industry and ensure you are getting paid what you are deserve. Avoid being shy and ask for what you want.  Notify your direct supervisor and their supervisor your top skills and key accomplishments each quarter.  Maximize employee benefits and monitor your benefits package. Ensure your package has portability and know the vesting rules of your retirement plan. 

Don’t be a Sponsor
Avoid loaning money to others even if you can afford it especially if you are the person who earns the highest salary in your social network.  If a person mismanages their finances loaning money will only enable them to continue their bad money habits.  Instead, offer to pay for them to attend a financial course or buy them a self-help financial book.

Pay down debt and get current on late accounts.  Keep debt (excluding rent/mortgage) at 15% or less of your net monthly income. Keep credit card balances at 20% or less of the credit limit. Pay more than the minimum monthly payment. Pay back student loans. Consider using student loan forgiveness programs. Pay with cash instead of credit cards. Keeping an emergency fund prevents you from going into debt. Plan for the future and always have a plan A, B and C.

Estate Planning
Your daily decisions affect your future so live for tomorrow instaed of today. Create a will to begin setting up estate planning. Create a medical directive to identify your medical wishes.  Also consider opening a trust to maximize tax shelters and minimize probate costs.  Max out your tax advantaged retirement plans. Commit to saving a set percentage of your income, so when your income increases, your contributions will also increase. Focus on long term growth. Leave your money untouched for the next 5 to 10 years to see the benefits of your money growing. Invest as much as you can in tax-deferred retirement plans, such as 401(k) plans. Your money will grow faster and you can afford to invest more now because you won't have to pay taxes on the money until you retire.

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