Business Building Corner

Step 1: Commit to change and assess your financial situation.
Make sure you are ready to accept responsibility for improving your financial situation. Do you believe you can and therefore will change the way you deal with your finances? Take a hard, realistic look at your situation. If you are willing to commit to managing your money, you are ready to start.

Step 2: Set yourself up for success.
Get copies of your credit reports. Your credit reports provide a snapshot of your overall financial situation and can help identify errors or fraudulent activity. Consider establishing an online bill payment service (offered free of charge by many banks and credit unions) or check with creditors about setting up automatic bill payments. Designate a spot in your home for organizing financial paperwork.

Step 3: Identify your earnings, net worth and debt.
Calculate your net worth: compare what you owe (liabilities) and what you own (assets). Make sure you are not outspending your earnings. Start tracking your expenses and you will understand where your money is going and where you can cut back. If you don’t know how much debt you have, you can’t come up with a plan.

Step 4: Set your priorities and establish short-, mid- and long-term goals.
Differentiate between needs and wants. Create a list of items and determine which are truly necessary and prioritize them. Short-term goals can be accomplished within two years. Mid-term goals are priorities that can be accomplished within two to five years, and long-term financial goals may take longer than five years.

Step 5: Pay down your debt.
There are two basic ways to pay off debt. The first is to pay off the smallest balance first and move to the next and so forth until all debts are paid. The second method is to repay the debt with the highest interest rate first. If you are unable to meet your basic financial obligations, contact your creditors immediately to advise them. Most will help come up with a payment solution.

Step 6: Save for your goals.
Saving is an essential part of any money management plan. Set money aside monthly to fulfill your short-, mid- and long-term goals. You can have money automatically deducted from your checking account into a savings account. If you received an unexpected windfall, don’t spend it frivolously. Save it.

Step 7: Identify and plan for periodic expenses.
Periodic expenses are those that are not paid on a regular monthly basis. For example, property taxes and income taxes are periodic. Some insurance plans are periodic. To always have enough on hand to pay these periodic expenses, determine what the total will be for the year and set aside enough money on a monthly basis to pay each periodic expense as it arises. Ideally, set aside enough to be able to live normally for six months if unemployed.

Step 8: Document your spending and identify ways to reduce.
Record your fixed, variable and periodic expenses. Add your income information and balance that against your necessary payments. Every purchase made, excluding food, rent/mortgage and gas for the car, is a choice rather than a necessity. Start small if the thought of spending less is daunting. For example, buy generic brands instead of name brands.

Step 9: Document your desired spending.
Write down what you are going to change. For example, if you are going to decrease your dry cleaning expenses, write down how much you will save. If you make your own coffee in the morning instead of going to a coffee shop, write down how much that will save weekly, monthly, annually.

Step 10: Understand the cost of credit as you move forward.
Weigh your options before making a credit decision. Know APR, the annual interest rate charged on a loan or the unpaid balance of a credit card. Be aware of the finance charge, credit limit and minimum monthly payment. Find out if there is a grace period before interest is charged. Are there late fees? Becoming overdependent on credit cards and loans is one of the biggest pitfalls on the journey to financial well being.