Do you tend to live paycheque to paycheque? Does the notion of setting up a savings plan put you into cold sweat? If either of these examples describes you to a T, then financial experts have a four-step plan to help you out.
What are you worth? Drawing up a balance sheet may seem daunting, but it's actually a very simple exercise. Start by listing your assets (what you own) and your liabilities (what you owe). Now calculate your net worth by adding up your assets and then subtracting your liabilities. If your net worth is positive, you're doing a great job of managing your money. If your net worth is negative — or “in the red” — It's time to tackle your debts and get your finances back on track.
Create a budget that is straightforward and flexible so it can be easily modified if your income or expenses change. Be realistic and specific about your spending. To build a simple budget, take a look at your monthly bank statements and bills to identify your fixed expenses (i.e. housing, groceries, transportation, bills, debts, etc.) and variable expenses (leisure, clothing, vacations, etc.). The goal is to find a balance so that you have a little left over each month that you can apply to your debt.
So, how overextended are you? To find out exactly how much you owe, add up all your debts. Then, determine which debt you want to repay first. (Here's a tip: Pick the one with the highest balance or highest interest rate.) Or, depending on your situation, consider consolidating your debts so that you only have one payment to make. Remember to reward yourself when you reach your goal — without using your credit of course.
Saving pays off, so start saving in small increments today. Experts suggest that you should save 10% of your earnings and have an emergency fund equaling a minimum of three months' worth of savings. This may be very overwhelming when you're starting out. So try starting small by saving five dollars a week until you have more funds available. Remember, saving a bit than saving none.
