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