Have you started looking at your finances more closely since last week’s column encouraging budgeting?
We hope to give you some concrete encouragement today on just what taking a close look at your finances can do.
Like other sometimes difficult issues — think dieting and clearing out clutter — we know that the mere thought of examining a tough financial situation can make some folks anxious and feel overwhelmed.
But today, one of our Neighbor Works of Grays Harbor housing counselors, Kelly Cooper, will offer up some concrete tips to give hope for real change in your financial situation.
RECAP FROM LAST WEEK
To recap the basics from last week, Kelly suggests that you start by tracking anticipated income and expenses.
That is, simply write down your anticipated income for a month, noting what days you will receive the money.
Then, looking through your past bills, etc., do your best to write down your anticipated expenses for a month — and, when applicable, when they are due. When you do this, keep in mind things such as house insurance or taxes that you only pay every six months or annually (if not included in your house payment). Those expenses you’ll need to be aware of so you can budget to “set aside” some money in savings each month so the total amount will be ready when those bills come due.
While you’ll want to be as close to the estimate as possible, if in doubt be a little conservative in your guess for the income and a little liberal in your guess for the expenses, so that you don’t find yourself short.
Once you’ve figured out what you have coming in and going out each month, it’s likely that you will want to address a specific financial goal, by tightening in one or more areas — perhaps eating out, shopping for clothes, daily lattes or going out to the movies every week — so that you can save in another — saving for a down payment on a house, the kids’ college fund, to pay off debt or simply to have some savings.
DEALING WITH DEBT
If you’re like most Americans, you may have some debt to deal with. Being organized – knowing what’s coming in and going out – each month, will be a big step toward freeing up money for you to use in ways you want to. Spending your hard-earned money on late fees and overdraft penalties is probably the biggest waste of money. A little order to your system can stop those dollars going out.
Once you’ve got yourself paying all the bills on time, it’s time to tackle your debts. A debt is a bill that isn’t a new monthly expense, but rather one that you are also paying interest on – typically credit cards and then also your car or house.
Kelly shared a couple of ideas on how to tackle these debts.
“It really depends on your individual financial situation and your own personal views as to which will work best for you,” she said.
METHOD 1 – SMALL BILL FIRST
The first way is to line up all the bills that you owe and see what you owe on each. Make a note which bill has the smallest balance.
Then, pay at least the minimum each month on all the bills except the one with the smallest balance. On that bill, pay the minimum plus the most money you can spare out of the rest of the budget to make as big of a payment as possible on that lowest bill.
The next month, you do the same thing, paying at least the minimum on all the bills, plus extra money on the bill with the smallest balance.
Pretty soon, that bill will be paid in full. Now, you pay at least the minimum for all your bills, and take the money you were paying toward the now eradicated bill and put it toward paying off the bill with the second highest balance.
With a clear goal in mind, it can help you as you make daily decisions. “If I forego this lunch out, that will free up another $10 to go toward my lowest bill.”
We will state the obvious here: This plan only works if you are not continuing to use your credit cards and rack up more debt.
Some folks call this method “the debt snowball.” That’s because like building a big snowball, it gains momentum quickly and the longer you do it the faster you’ll see results.
Another advantage of this method is that you can quickly see concrete progress, which is certainly helpful when you’re working hard to tighten your financial belt.
METHOD 2 – TACKLE INTEREST
The second method of tackling debt that Kelly suggests also starts with lining up all the bills that you owe. But this timeWhen you determine which one has the highest interest rate — the percentage amount charged to you each month for owing the money — then that is the bill you have razor-sharp focus to eliminate first.
Like the first method, you pay all your minimum payments for all your bills on time.
Then, the one with the highest interest rate, you pay as much extra as possible on it to quickly as possible eradicate it.
With either method, once you’re focused on the bill at hand, you can even sell things on e-Bay, have a garage sale, take a little extra job, anything you’re able to do, to put as much money onto that bill each month until it’s gone.
When it is gone, your attention moves to the next bill with the next highest interest rate.
FOCUS TRANSFERABLE TO OTHER FINANCIAL GOALS
Perhaps – Hallelujah! – you don’t have any debt, but you would like to start saving for a down payment on a house, retirement, for your kids college, for a nice vacation or even just to have a little extra in savings.
No matter what your tax bracket, you likely have financial goals of some kind. Like any other goal, it’s helpful to write it down or somehow acknowledge it so you can focus your attention on it.
Again, look where you are spending money in your budget and see if there are areas you can cut back or eliminate entirely to meet some other goal.
Dave Murnen and Pat Beaty are construction specialists at NeighborWorks® of Grays Harbor County, where Murnen is the executive director. This is a non-profit organization committed to creating safe and affordable housing for all residents of Grays Harbor County.
Do you have questions about home repair, renting, remodeling or becoming a homeowner? Call us at 533-7828, write us or visit us at 710 E. Market St. in Aberdeen.