All this week, we’re going to cover ten steps you can follow to take control of your money and get your financial life in order. Today, we cover two initial steps you can take to prepare for retaking your financial life.
Step 0: Help Those Who Are Less Fortunate
It was pointed out to me after I created this list that I forgot one of the most important elements of being satisfied with your financial life: helping others. Now, if you find yourself short on cash, spending nearly as much (if not more) than you earn, with tons of debt, no emergency fund, and virtually no savings, you’ll be hard pressed to come up with a large amount of money to give to charity. If you absolutely cannot find money in your budget to give to the less fortunate, I’m willing to look the other way while you work to complete the steps to get your own finances in order. (Don’t worry; one of the later steps will have you contribute to charity as well, so don’t think you won’t be helping out the less fortunate.)
That said, I’d encourage you to search your budget for at least a small amount of money to give to the less fortunate. Even one percent of your income, while being an amount you will barely miss, can be enough to make all the difference for someone less fortunate in the country (to say nothing of the world). Giving will make you feel better, and who knows, a little good karma might accrue to you as you attempt to improve your financial situation. As you work your way through the rest of these steps, continue to give to charity, and periodically re-evaluate your giving to see if you can be just a bit more generous.
Step 1: Earn More Than You Spend
This is the key to making any progress in your financial situation. If you are spending every penny that you make, or worse, going into debt in order to do all your spending, you need to change your spending habits, cut down on your expenditures, and work on earning more money.
Three possible methods to consider are cutting your voluntary spending, working overtime, or downsizing your lifestyle. There are numerous ways to cut your spending, from asking your credit cards to cut the interest rates to eating out less often to canceling cable service. Similarly, if your company doesn’t consider you an exempt employee or otherwise ineligible for overtime, working a few hours each week will increase your income. Changing your lifestyle is the most complicated way to earn more than you spend, but it has the biggest potential: buying a smaller house, moving to a less expensive neighbor hood, or going back to school to get a better job can all drastically increase the amount of money you have available.
No matter what method(s) you choose, your goal should be to have at least some money left over each month that can be put toward all of the other goals in your life. The more money, the better, of course, but even if you can only manage to trim $100 from your expenditures, it will help you meet your financial goals. But, before we start getting into those goals, one more bit of prep work.
Step 2: Have Adequate Insurance to Protect Yourself and Your Family
In every life, there will arise problems and troubles. Insurance is designed to provide a buffer against the worst possible outcomes when things go wrong. There’s a variety of insurance types you might need, depending on your circumstances. Here’s a quick overview of some them:
–Life Insurance: If you have anyone who depends on your income for their livelihood, it’s good to have insurance to care for them if something happens to you. Your best bet, in most cases, is to get term life insurance in a large enough amount to provide for them if you should happen to die.
-Automobile Insurance: Besides protecting you and your family if there is an accident, in many cases auto insurance is required by your state. Insurance can cover collisions, the liability if any damage occurs during the use of the car, and comprehensive coverage that covers most other incidents.
-Homeowner’s/Renter’s Insurance: These policies will cover the contents of your dwelling (and the property as well, for homeowner’s insurance) from damage or loss. It will also protect you if someone is wounded on your property.
-Health Insurance: Frequently provided through your employer, if you aren’t covered or want additional coverage, adding health coverage will protect you should you get sick or injured and need to see a health professional.
Hopefully, ensuring you have complete insurance coverage hasn’t eaten up all of your extra funds; tomorrow, our money management really starts to get fun.