Financially Screwed? 3 Ways to Turn Your Money Life Around
I've said it before and I'll say it again, the hardest part is getting started. That applies to so many things in life, whether getting in shape, quitting an addiction, starting a relationship with someone you care about, and (as is most relevant to our discussion) becoming financially stable. Sometimes it can be tough to read these finance websites. Even the most basic ones will discuss subjects that seem impossible to attain: financial independence, home ownership, or even paying your bills on time. You've got to walk before you can run. If you're feeling overwhelmed by a financial situation that is in the toilet, you can change things. Here are a few ways to start turning the tide.
Debt: Know Your Enemy. Debt sucks, and some people get overwhelmed by it their whole life long. It's easy to let debt get out of hand, and to ignore the problem the worst it is. Part of this is because debt can be a source of shame and fear. Many of us have had the experience of not wanting to check the balance of our bank account, for fear that it overdrafted. Debt is even worse. It can feel like a cancer growing in your finances...and it is.
Enough of that. If you want to kill your debt, you can't dwell on the shame and fear. You've got to understand it for what it is, then pay it off. First, sit down with a pen and paper and write down what you're dealing with. It helps to see it in front of your eyes. If you have credit card debt, take careful note of the balance, the annual APR, and the available credit limit associated with that account, etc. When you have all of the sources of your debt arranged (including student loans, money you owe to your parents, etc.), arrange them in order from smallest to greatest.
From here, start paying off the accounts, starting with the smallest. Of course, maintain minimum monthly payments on all accounts. But fire every extra penny you can muster at the smallest amount, even if it's just $25 extra per month. When it is gone, take that $25 and add it to the monthly minimum payment you were paying for the now paid-off account. If that minimum was $25/month, you now have $50 free in your budget to start throwing at the second biggest debt amount every month. Rinse and repeat until your debt is gone. This may take years, and you'll have to be careful not to raise new debt in the meantime, but it's a method that works.
Spending: Know Your Limits. Many of us find it easy to spend money like it grows on trees. That works for people who don't mind being broke, but if you are determined to get your finances in order, it won't work for you. A budget will be your best friend as you pay off your debt and try to build wealth once it is vanquished. There are many good budgeting strategies out there, so I won't go into them here. Simply live well beneath your means and save the extra money, no matter what it takes.
Save and Invest: Know Your Goals. Saving and investing is about building a better future for yourself and the people you love. In the above scenario about debt, you'll be using an ever-growing monthly payment to kill off the debt. Once it's gone, that's extra money that you can use for another purpose. When you're debt free, don't start spending your extra money on stuff you want. Continue to apply the spending limits you placed on yourself in step two, and save that extra money. Build an emergency fund until it is big enough to cover your expenses for a year, just in case you got sick or lost your job. Then start to max out your IRA and/or 401(k) every year. Start to consider buying a home to save loads of money compared to rental costs. Consider getting additional education to start making more money with a stronger skill set. In short, use your new "disposable" income to ensure that you'll never again be financially screwed.