So 2014 is the year of the great financial leap forward, eh? You are finally going to get your finances on track. Bravo, you Fiscal Warrior! But like many a New Year's resolution about diets, exercise or de-cluttering, the seeming enormity of the task always becomes one of the big reasons that we end up breaking our promise by February.
It doesn't have to be that way. Many of us spend more time watching TV shows we don't even like than we would need to fix our finances. Just follow these seven easy tips and not only will you be on the road to financial stability, you'll also realize how easy it is to stay on course.
1. Assess Your Discretionary Spending
We all know intellectually that the reason we end up in the hole is that we spend more than we make – but each one of us is different in what we emotionally spend it on. For some people, it's the $4 latte every morning, and for others it's the $2 iPhone app every afternoon. So sit down and walk through two months of bank account and credit card statements online, and start adding up those little almost-invisible charges and expenses to find your budgetary leaks. Then start plugging them by reining yourself in.
2. Check Out Your Credit Profile
It's federal law that the three major credit reporting agencies have to give you a free copy of your credit report every year, and provide a process through which you can resolve errors. But when was the last time you took advantage of that right? Not only can knowing what's in your credit report and correcting errors help you better understand why you have to give your cellphone company a deposit when you open up a new line of service, but you can also see if there are any old unpaid bills dragging you down – and you can budget to resolve those forgotten, outstanding debts. You can use Credit.com's free Credit Report Card to monitor your credit more regularly and follow your progress. It gives you free credit scores monthly and breaks down the information in your credit report using letter grades.
3. Understand What Your Debt is Really Costing You
It's one thing to have a mortgage or student loans to pay (or even a reasonable car payment). But if you owe money to credit card companies or even on a debt consolidation loan, every single thing on which you spend money today is actually costing you 10 percent, 20 percent or even 30 percent more -- in interest on that debt you aren't paying off. The more you think about your discretionary purchases as the opportunity cost of paying off your debt, the more those monthly minimums are going to seem really minimal.
4. Budget, Budget, Budget
So now that you figured out what you spend and what you owe, sit yourself down and look at what money you have coming in and what you really need to spend it on – food, shelter, transportation to work and errands, and (mostly replacement) clothes. What's left is your discretionary budget – only, if you have consumer debts, you've actually already spent a lot of that. So create a minimal discretionary budget to cover a once-a-week latte, a twice-a-month app purchase, or one take-out lunch a week (or whatever your indulgences are that are killing your finances), and plan to spend the rest of what you have left paying down your debt.
5. Get on a Savings Kick
When you are living paycheck-to-paycheck, there is no bigger budget-killer than the emergency expense – be it a dental emergency, veterinary care or an unexpected car repair. But even though the exact outlines of your next emergency aren't knowable, the fact that one is certainly coming is a situation for which you can plan. Credit.com contributor Mitchell Weiss recently wrote about the 25 percent savings strategy, which can help you budget for the unexpected. It's one of many strategies out there, but whatever plan works for you, stick with it because you are going to need that money sooner or later.
6. Focus on Your Taxes
While technically your taxes aren't due until April 15, if you want to minimize what you send to Uncle Sam, don't wait until the last minute to fill out the most basic tax return form. Instead, use the IRS website, a private sector program or even your state or municipality's tax preparation service for lower-income families to become familiar with the credits and deductions to which you might be entitled -- and gather and save your receipts and other proof to justify taking them. Like the rest of your finances, a little advance planning can make a world of difference.
7. Don't Abdicate Responsibility for Your Financial Future
Nobody likes chores, and keeping a close eye on your finances can definitely be a chore. It's quite easy to just throw up your hands and leave things to the fates. But you (probably) wouldn't let the trash pile up and hope for the best, or fill a room with dirty laundry and just go out and buy new clothes (though the thought is tempting), so don't just leave your finances to chance, either. Help ensure that this is the New Year's resolution that you keep by making it easy on yourself: start small, create achievable goals and use the tools available to you – like technology – to minimize the time and effort it takes to stay on track.
Adam Levin is chairman and cofounder of Credit.com and Identity Theft 911. His experience as former director of the New Jersey Division of Consumer Affairs gives him unique insight into consumer privacy, legislation and financial advocacy. He is a nationally recognized expert on identity theft and credit.