10 Steps to protect your finances against dangerous changes
If there is one thing that is certain in life, it is that things always change.
The most dangerous place you can be financially is complacency – getting too comfortable with the way things are. I’m not saying you should spend your days worrying about your finances, but having a good grasp on your financial situation and possibly a Plan B do make logical sense.
The following 10-steps are a good starting point. How many can you check off the list? Which one resonates with you? If one (or more) instill a sense of dread or fear, that is likely the exact one (or more) you need to focus on. :
(1) Be honest with yourself. Ignoring the situation is not going to make it go away. In fact, it will cause it to get worse. Open your mail. List your expenses, your bills. Start collecting the data necessary to make some prudent decisions.
(2) If collecting past data on spending is not a simple task for you, commit to tracking your spending from this point forward and look at your “hot spots” – those places where money is wasted or not going to the things that most important to you.
(3) Visit refinancing early. Don’t wait until you are in trouble, options decrease then. Talk to your financial institution now and ask if there is anything they can do to help you pay down your debt more quickly. Ensure that the solution they offer fits into your spending plan. Blindly accepting whatever solution they give can lead you into more debt and more headache.
(4) Call your credit card companies NOW and ask them if you qualify for a better interest rate. Explore balance transfer options if you have credit available with lower rates.
*Be warned that when you get close to your limits, your interest rates are automatically increased. Take steps to pay down your debt, below the limit ,or ask if you can increase your limit BUT DON’T USE IT!!!
There is a thin line between financial strategy and financial disaster!
(5) Spend less than you make. The ONLY way you can begin to get out of the credit trap is to spend less than you make.
(6) Start a savings fund to handle things as they come up so you can begin to decrease your reliance on credit. This isn’t an emergency fund, it is an Occasional Expense Account. There is a difference. This is for expenses that WILL come up, not that COULD come up. See No. 2 of my previous post: The Six Most Important Lessons I Learned Last Year
(7) Review every monthly “bill” – insurance, utilities, etc. – and contact the company to ask if you qualify for a better plan/rate. Companies don’t seem to have ‘long-time-customer-loyalty department’ but they do have ‘retention departments’. If you call to move your business it is amazing sometimes what they can offer you. Getting a price from another company as ‘leverage’ can be helpful.
(8) Set up a simple system for paying bills and spending money. Some people call this a budget – Yech! – I call it a Spending Plan. Regardless of what you call it, it is an essential step to gain control of your finances. Follow the Simple 3-Step Spending Plan to make it easier.
(9) Take every cent you save from cost-cutting measures and redirect it. Depending upon your situation and needs, you can put the extra on debt repayment, savings or a combination of the two.
(10) Have a family meeting to discuss family expectations and get everyone on board to ensure success. Family structure and ages play a large part in the topics discussed. The following are some examples of things you may discuss with your spouse/children:
Spouse – who pays what bills, a plan to combine resources and expenses, how you will review spending, what amount should be mad money (money that can be spent without any tracking/accountability <– that’s important!), amount to save and goals that you are saving/planning for.
Children – Depending upon the age of children, the discussions would vary. You may want to set some expectation for kids allowance, chores to earn extra money, outline exactly what expenses you will cover and what things your child should expect to pay for on their own.
All – you could set a family goals (ie. a trip) and discuss ways that you can ALL save money with a plan to redirect any savings to this common goal. This is a great way to get everyone involved, teach your kids some valuable lessons about money and have some fun.
So there you have it, 10 things that you can do today to reduce your risk and discomfort should rates (or other expenses) rise or income decline.
Wishing you all…
Happy, Healthy Finances!
Mary Ann Marriott
aka Dr Debt