There are some basic financial rules that you should follow if you want to regain solid financial footing. At first, these may seem very difficult but once you are able to prioritize your expenses and your future goals, you will find the discipline to follow these rules to the letter.
First, see to it that your debt payments make no more than 20 percent of your take home pay. Debt here includes your credit card, car, and other personal loans. It does not cover mortgage or rent—they will be tackled later. Thus, if your monthly take home pay is $3000, you should be paying no more than $600 per month for all the types of debts mentioned.
Note, however, that calculating your debt on a monthly basis can hide a huge amount of debt because you can just pay the minimums and still your monthly payments can be way less than 20 percent. So to make sure that you get a good grasp of how bad in debt you really are, get the total unpaid balance of all your consumer debts. If this is more than 20 percent of your take home pay for one year, then you are drowning in debt. Let’s say your annual take home is $35,000 and you have a $15,000 credit card debt. Since 20 percent of $35,000 is only $7,000, you are in too deep with your financial obligations and you have to do something about it fast.
The second rule is to spend no more than 30 percent of your monthly take home pay for rent or monthly mortgage. We hear of too many Americans being “house poor”—that is, they get a house which is way too expensive for them. So if bring in $3000 a month after taxes, you should pay no more than $900 a month for your roof over your head.
Finally, make it a point to save at least 10 percent of your earnings every month. This is the absolute minimum that you should try to stash away for the rainy days. So that you don’t get tempted to spend this, automatically have this amount transferred to your savings account from your paycheck. Of course, the more you can save, the better it will be for you.
Ways to Track your Money
If you have been less than judicious with how you spent your money, you might have experienced wondering just where exactly your cash went. In worst case scenarios, shock probably overtook you when you realized that the money you had earmarked for the electric bill has already been partly spent or has gone completely “missing” from your wallet. The prospect of having your electricity cut off is scary and actually spending unwanted candlelit dinners is not at all fun or romantic.
Thankfully, it’s easier to keep track of where our money goes these days. Technology has certainly evolved to a point that it has made it more convenient for us to ensure that our dollar goes where we want it to go.
- Online Bill Pay
In this method, you simply add merchants that you want to pay to your bank account. This is usually available in most banks that give clients the ability to conduct online transactions. Write how much you have to pay to the merchant and the date when you want to pay them. You can choose to schedule the payments once a month or at recurring dates each month. If you choose the latter, do make sure that your account has money by that time. Your online statement will reflect the payment.
Online bill payments ensure that you don’t forget your monthly obligations since it is automatically deducted from your account as soon as you schedule it. This is especially important for ongoing monthly bills like your utilities and rent.
- Merchant Automatically Deducts
Instead of you having to put the merchants on your account and arranging for the deductions, you can instead have the merchant automatically deduct their charges direct from your account on a certain date each month. For example, you can arrange with your cellphone company to directly deduct your bill from your checking account each month and they will do that for you. Just make sure that you are dealing with a reputable merchant. You should also still do the necessary checks that the merchant has only deducted the exact amount from your account. Reports of some merchants directly levying additional charges have made a lot of individuals wary of this mode of payment.
- Trusted Envelope System
If you would rather pay for things in cash, then the time-trusted envelope system works best. Put all the expenses and amounts in appropriately-labeled envelopes. When the “dinners out” envelope starts getting low, you know it’s time to do more home-cooking.
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