Preparing Ourselves for Changing Financial Times

Our nation is experiencing a economic uneasiness. Even without reading the news articles written about the Fed’s latest decisions or taking note of the formal indices and the latest trending patterns, there are signs of changing times and a heightened awareness of the financial climate. Many have lost their jobs, or their jobs are less secure than they once were. Many are living in homes that are under water because the mortgage may be tens of thousands of dollars less than the appraised value of the home. Many others experience debt and credit problems that impact current situations and future decision making. So, what can be done? Is it too late? First, it’s never too late to change direction or to take action. It’s never too late to adapt. It’s never too late – but it might be difficult. Taking action to improve a situation is challenging, however, it’s worth going through certain actions to take control of our resources, including inancial wealth – and the sooner, the better.

Step 1. Prepare a Budget
Prepare, to the best of your ability, an accurate accounting of monthly income and expenses. As boring as it may sound, to get back to basics and build (or rebuild) future wealth, the first step is to know your current financial status. It would be next to impossible to determine past spending habits and make future recommendations —financially speaking – without a budget.
Although this task is often discredited as having little or no real value, without this basic document there’s no springboard from which to plan and build a financial future on. A budget is one of the most basic tools for navigating through financial waters. Another consideration to keep in mind is that, even if a budget is deemed by some to be unimportant, financial managers and lenders do not share this view. Lenders, including mortgage and auto lenders, as well as most credit card companies prepare a version of a personal financial statement (or budget) when a loan request is submitted to them.

Step 2. Cut Expenses
Now that the budget information has been gathered, the next step is categorize expenses into one of three types. The types of expenses will be split into three lists: Absolutely Necessary, Could-Live-Without, and Unnecessary. For each expense that took place in the past three months, enter each transaction in one of these columns. Sometimes it is difficult to determine which column expense should be assigned to, and in that case it might be a matter of personal choice. However, the goal should be to cut expenses by at least 10%. If 10% would be fairly easy to accomplish, then make the goal 20% less than what current expenses are. Examples of cost cutting ideas might be to decrease (or eliminate) the cable TV bill, clean out a storage unit that contains household items, furniture and tools that haven’t been used for months, or eat meatless two nights a week.

Step 3. Start or Add to Savings
Even if there never seems to be enough money to go through the end of the month, it is an absolute necessity to put money aside on a regular basis in order to grow financial health. Oftentimes, savings is an overlooked aspect of finance because of the time it takes time to build a sizable amount, especially at today’s interest earning rates. However, the importance of setting aside even small amounts of money in some sort of savings account – regardless of the interest rate – is the basic framework for financial health! In other words, the emphasis is that we turn our financial habits from where we are now to where we need to be when the economy improves. Think of ways to set aside even small amounts at first so that the hurdle to begin saving won’t be insurmountable. Make it a family affair and chart the weekly progress. This is not an exercise in futility. Saving needs to be a basic foundational habit because your future financial health depends on it.

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