When you’re just starting out, purchasing your first house can seem like a daunting task. But certain milestones can mean huge changes in how you handle your money. Here are six suggestions to help get your financial life on track.
1. Create a net worth statement
To create a snapshot of your current financial situation, look online for helpful worksheets or make your own spreadsheet that you can easily amend it as your situation changes. In one column, list your assets (or what you own) and the value of each item. Include account balances and possessions, such as vehicles. In another column, list your liabilities (what you owe). Subtract the liabilities from the assets; the difference is your current net worth.
2. Set financial goals
If your net worth is a negative number, one obvious goal is to change it to a positive number. This can take years, however, especially if you purchased a car recently. Set several goals with varying time frames. Think of one goal you can accomplish in a year, one in five years and one in 10 years.
3. Review loans
Loans that you secured a year ago or more may be ripe for restructuring. The higher the balance on the loan, the more important it is to get the best deal possible. Interest rates may have decreased; your income may have increased; or your credit may have improved. Any combination of those factors could lead to better financing rates for things like auto loans.
4. Examine your credit report
Lenders, rental-property managers and prospective employers check your credit history, so you always should know what’s in it. Being aware of your credit score is a good start, but you should check the detailed report at least once a year. Correct inaccuracies, investigate any accounts you don’t recognize and close accounts if necessary.
5. Keep a spending log
Record what you spend for at least a month. This goes for all adults in the household, so make this a team effort if you have a partner. You might be surprised to discover where your money goes. Use an app or just a small notebook. Next, separate your expenses into categories. Common fixed expenses include rent or mortgage, car payments and student loans.
Categories that vary each month include groceries, fuel, personal care, clothes, dining out and recreation. Add up your figures to see how much you spent on what. When you’ve done the math, it’s time to evaluate. Does your spending reflect your values? Take a moment to assess the results and decide if any changes need to be made.
6. Create a spending plan
A spending plan (or budget) requires using the categories you developed when evaluating your spending log. Decide how much you’ll spend in each group during the next month. Automate bill paying for the fixed expenses, so you’ll never be late with payments, and get charged fees and penalties. Then revisit your financial goals and examine your progress.
If you’re not already setting aside the funds to meet your financial goals, redirect money from the variable spending. Increase the odds that you will stick to the plan by making sure not to shave off more than 10 percent from any one category.
Set up a savings account. Add up those small amounts from the various categories and automate regular deposits into the savings account. Schedule it for the day after payday, so you will be less likely to use that money on things that are not important.
