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One of the hardest things for many people to do is get a handle on their financial situation.  This is true for individuals across the spectrum, regardless of age, sex, or income.  The key to getting your finances in order is to become organized enough that you can identify where your money is going and plug the leaks in your financial planning that is draining your cash.

The reason that so many people neglect to take control of their finances is because it seems like a time consuming and tedious thing to do, which doesn’t mesh with our “go at top speed constantly” culture.  It can be difficult to arrange your financial information so that what you need to know is easily accessible and simple to identify, but it can be done with time and dedication.  Here are some tips for getting your financial house in order.

Track All Expenses

You will never be able to take control of your finances if you do not know where your money is going.  Tracking all of your expenses is the first and most important step of getting your financial situation in order and is the easiest way to identify spending excesses.  Most people track the larger items that they consider important, like mortgage payments, utility costs, and credit card payments, but neglect to monitor their smaller spending categories, such as dining out and entertainment, that are the real budget busters.

Start A Budget

Once you have identified and tracked your expenses, it would be prudent to design a household budget that you can stick to.  This supplies you with a spending amount for each category that is manageable, a specific amount for saving each month, and a way to prevent overspending.  Depending on the household, this budget can be very simple and streamlined without many entries or be complex with numerous categories to track.

Use Financial Planning Software

If taking control of your finances is proving difficult, you may need the assistance of financial planning software.  There are a number of different financial planning software programs available online and in retail stores, ranging in price from $0 for the simplest solutions on the internet to over $300 for the more complex programs sold by independent developers and retailers.  It is very important for the person choosing the software program to review the details of the program carefully to ensure that they are getting the best financial planning software for their needs.

There are many different ways for a person to save money on the routine things that they do each month, but many neglect to investigate the best way to save money each month.  Although many methods of saving are very effective, the best way to save money each month is to pay off your debts, especially high interest debt like credit cards.

What Are The Benefits?

There are a number of benefits that can be associated with paying off high interest debt.  The most frequently touted benefit is the fact that you will not have a monthly bill to pay to a creditor for the privilege of borrowing their money.  There are individuals that are paying a steep price for buying on credit and not paying off those debts as quickly as possible can lead to decades of making payments to the creditor.  In order to discharge those payments, the credit account must be paid off as soon as you are able.

A reduction in interest payments to creditors, which is a professional way of saying a fee for borrowing the creditor’s money, is another benefit to paying off high interest debt.  The money that you are paying in interest on your credit card accounts and other high level debt provides you with nothing – it doesn’t put a roof over your head, clothing on your back, or food in your mouth.  Wouldn’t you like the money you earn to be providing material items for you instead of paying for some banker’s second mansion?

An often overlooked benefit to paying off high interest debt is the increase in your credit score by lowering your credit-used-to-credit-available ratio.  The amount of credit that you are currently using in relation to the amount of credit that you have available to you accounts for nearly a third of your credit score and lowering this ratio can increase your credit score dramatically.

How Can I Eliminate These Debts?

The best way to eliminate these debts is to tackle them one at a time.  Focus on the debt with the highest interest rate and pay that account off first.  You may have to make some sacrifices to pay more than the minimum payment required, but paying the debt off faster means that you will be able to keep more of your money in your pocket much sooner.  It is important that you pay at least the minimum on all other accounts during this time and ensure that all of your bills are paid on time to avoid triggering a higher interest rate that will take longer for you to pay off.

In today’s environment of high debt levels and declining wages, it is no wonder that so many individuals have marginal or poor credit scores and are looking for a way to repair them.  There are many scam artists out there willing to prey on those desperately seeking a solution and it seems that another new scam to obtain money from these solution seekers appears every week.  Would you be able to identify a credit repair scam if it was presented to you by a seasoned scammer?  Here is how you can identify some of the most common credit repair scams used today so that you do not become a victim of these thieves.

The File Segregation Scam

This seems to be one of the more prevalent credit repair scams out there, with thousands of individuals becoming victims of the scam each year.  The way that the scam works is that the scammer obtains an employee identification number from the IRS to be used in place of the individual’s social security number, thereby divorcing all new credit information obtained through the employee identification number from previous credit information linked to the person’s social security number.  Some people go a step further and use new addresses and phone numbers with the employee identification number to make it even harder to associate the two accounts.

Although this may seem like a great way to wipe the slate clean and start over, it could end up costing you a great deal of money and a criminal conviction.  In essence, the scam artist is teaching the consumer how to create a false identity, the use of which is a felony anywhere in the nation.  The price that is paid for using this method is way more than you will actually pay the scam artist to create this fraudulent identity.

The Negative Information Removal Scam

Some scam artists will tell potential victims that they can remove negative information from a credit report, for a nominal fee of course.  The problem is that accurate negative information on a credit report cannot be removed and may be visible on your credit report for seven years or more.  The most that any legitimate credit repair company can do is obtain a copy of your credit report, review it for errors, and notify the credit reporting bureau of any discrepancies that they find.  This you can do on your own for a much lower cost.

Bankruptcy is one of the most difficult financial issues to understand, mainly because so many people do not learn about bankruptcy because they think that bankruptcy will never affect them.  The truth is that anyone can be affected by a bankruptcy during their lifetime and the best way to navigate the situation is to know about the terms and procedures that will be used in the bankruptcy proceedings.  There are many common myths about bankruptcy that are routinely accepted at fact and knowing what these myths are can help you make the right decisions about bankruptcy.

Myth – Only Poor People Declare Bankruptcy

Many people believe that only poor people and failing businesses declare bankruptcy.  The truth is that bankruptcy affects people in all income brackets.  Many of the individuals that choose to declare bankruptcy because of their current financial situation are considered to be middle-class, making more than $60,000 per year, and have reasons for filing for bankruptcy that vary widely from person to person.  There is no way to predict who will be affected by bankruptcy during their lifetime and who will not.

Myth – All Bankruptcy Cases Are The Same

There is no ‘one-size-fits-all’ solution to bankruptcy cases, so every person’s experience with bankruptcy is going to be different.  Some individuals may find that their bankruptcy proceedings go easily, with few problems and a clear solution at the end of their case.  Other individuals may find their bankruptcy proceedings difficult and complex, often eliminating much less of their debt than they believed would be eliminated at the beginning of the process.

Myth – Bankruptcy Gives You A Clean Slate

Many people believe that filing for bankruptcy will eliminate all of their debt quickly and that they can get back to their normal habits quickly afterwards.  What these individuals do not realize is that there are certain types of debt that cannot be eliminated through bankruptcy, such as child support debt, student loans, and alimony.  If these financial obligations make up the bulk of your debt, bankruptcy will not be much help to you.

Myth – Bankruptcy Destroys Your Credit Score Forever

Everyone knows that having a bankruptcy on your credit score is not a good thing, but many people blow the effects that a bankruptcy entry will have on your credit report out of proportion.  A bankruptcy entry on your credit report will remain visible to potential creditors for ten years, but you can begin repairing your credit immediately after your case has been closed.  In many cases, the individuals that declare bankruptcy already have low credit scores from months or years of missing payments and struggling to make payments on time and are able to return to their pre-bankruptcy credit score in a relatively short time period.

There are many different things that can affect our finances negatively, but there are a few actions that we can take to guarantee that we stay in debt forever.  Some of these things are easier to accomplish than you would think and many of these actions are things that we do unthinking, never realizing that are actions are causing financial devastation until it is too late.  If you really want to destroy your financial security, here are some good ways to do it.

Carrying A Credit Card Balance

Carrying a credit card balance is one of the best ways to guarantee that you will stay broke for the foreseeable future.  Credit card balances cost a fortune in interest payments, service fees and account fees, sucking up a great deal of your disposable income and putting you at the mercy of the credit card issuer.  Many people spend decades trying to pay off credit card debt, spending thousands of dollars in additional money to pay off purchases made long ago.

Paying Too Much For Your Largest Expenses

You are never going to come out ahead financially if you are paying too much for your largest expenses, such as your mortgage payment, your rental payment, or your car payment.  If you are consistently spending more than 30% of your take home pay on your housing or more than 10% of your pay on a vehicle, you will find yourself chronically short on cash and having difficulty saving.  In these cases, the only other option you have is downgrading to a place that is more affordable on your salary.

Confusing What You Want With What You Need

There are very few things that we as humans really need, like food, clothing, and shelter.  The problem comes in when we start confusing the things that we actually need with the things that we merely want, like cable television, multiple pairs of sneakers, or dinners that we don’t have to make.  Mistaking the things that you want for the things that you need is a surefire way to ensure that you continually spend more than you have to.

Focusing On The Short Term

Businesses are great at getting people to focus on the short term costs of a purchase instead of the long term costs and consequences.  For example, on a new car loan, the new payment may be lower than what you were paying for your old car, but you are not taking into consideration that you will be paying that new car loan for a longer period of time, resulting in a significant increase in expenditure.  Companies are experts at diverting you from looking at the total cost of the items that they are selling and not calculating the true cost of the items that you are buying is a good way to remain broke for the foreseeable future.

There are many things that people think are true about credit cards that are not true at all.  This type of misinformation can cause people to make bad financial decisions and to accumulate unmanageable debt, which can lead to financial devastation and bankruptcy.  Here are some of the most common myths about credit cards today.

Myth 1 – Just Pay The Minimum

Many people make only the required minimum payment on their credit cards each month, reasoning that they will just pay whatever the credit card issuer says to pay as the minimum and they will eventually pay off the debt.  Most of these individuals do not understand that the minimum payment amount will only cover the monthly fees charged to the account and one-percent of the actual balance, as required by federal law.  This means that if you stopped charging purchases to the credit card today and made only the minimum payments each month, it would take you at least 100 months – 8.3 years – to pay off your balance.

Myth 2 – Go For The Rewards

Most of the people who hold a credit card with a rewards program specifically targeted that credit card because they desired the rewards associated with the program.  What many of these people do not understand is that the rewards are still costing them plenty – through program fees, account fees, finance charges, and interest charges associated with the credit card.  With some of the more popular rewards programs, you would have to spend a minimum of $5,000 with the credit card each year to earn a reward equal in cost to the annual rewards program membership fee.

Myth 3 – Paying With Cash And Paying With Credit Costs The Same

Many people make no distinction between paying for an item with cash and paying for that same item with a credit card because the total on the register is the same in both cases.  The truth is that this is only correct if the person pays off the balance of their credit card each month.  If a balance is carried on the credit card, then the cost of that purchase will increase quickly due to finance charges, interest charges, and fees related to carrying a balance on the credit card, adding 20% or more to the original cost of the item purchased.

It is hard for experts to explain why so many people in the population resist creating a budget to manage their monthly finances.  Budgeting is a necessary evil for any person that has the potential to overspend or has a set amount of income that they can use each month.  The only way to truly tell how much money you are spending and what you are spending that money on is to create a budget and track your expenses to ensure that you are not spending more than you intend on certain spending categories.

Budget Creation

Creating a budget for tracking expenses will typically require three steps to be followed.  The first step is to find out what you are spending money on and how much you are spending on these items each month.  You cannot create an accurate budget if you do not know where your money is going or the amount that you are spending.  Tracking your spending in this way will also allow you to identify any areas where spending can be cut or eliminated.

The next step is to allocate spending to each category that is necessary, such as housing, transportation, and savings, and each category that is optional, such as entertainment.  This allocation should take into account any long term financial goals or short term plans that are being considered.  After the money has been allocated, it is very important that spending is tracked accurately to ensure that the spending is falling within the guidelines of the budget.

Simple Tips

You may want to use budgeting software to help you create an accurate budget and help you accurately track you expenses.  These software programs are designed to be user-friendly and simple to use, but may not provide the level of detail that you are looking for without editing the fields used by the program.  It is important that you not drive yourself crazy by fixating on all of the little details of the budgeting program, but can use the program to assist you in taking control of your finances.

When tracking your spending initially, it is important to include all transactions in your calculations, small and large.  Many people are astounded to learn how much they are spending each month in fast food, ATM fees, and vending machine snacks once they have actually identified their spending patterns.  Remember, spending over limits is how people get into debt and continuous overspending will eventually result in bankruptcy.

Making financial goals is a good idea but creating a plan to achieve those goals is necessary if you want to make sure that you achieve these goals.  Getting started on creating a plan to reach your financial goals can be difficult and time consuming, but the benefits associated with having a financial plan to follow is well worth the time it takes to create the plan.  Here are some tips on how to achieve your financial goals.

Debt Elimination

If it is difficult for you to pay all of your bills each month and you are just barely getting by, it is past time for you to make a plan to eliminate your debt.  One of the best ways to eliminate high interest debt is to refinance it under a lower interest rate and then dedicate any additional money you earn to paying off the balance.  For example, the typical interest rate for a credit card is over 16% but the average interest rate for a home equity line of credit is around 8%.  If you were to use the home equity line of credit to pay off your high interest credit cards, you would be reducing the amount of interest you are paying on the balance by half.

College Saving

Saving for college for your children is one of the hardest financial goals to reach because you must begin while the child is still to young to know what they will be majoring in, whether they will be going for Master’s or Doctorate degree, whether they will using grants or financial aid, or whether they will be attending college in the state that they currently live in.  Saving for college must cover a number of unknown criteria and the costs of college continues to rise each year.  The 529 savings plans offered by many banks allow college savings to grow tax free each year until the money is needed for college expenses.

There are also Coverdell Education Savings Accounts that can be used to pay college tuition.  These accounts allow savers to place up to $2,000 into the account every year to earn interest until the money is withdrawn tax free to pay for tuition.  If an account was begun when the child was born with the annual maximum deposited and earning 8% interest, on the child’s 18th birthday the account would be worth more than $80,000.

Retirement Saving

Many people believe that when they retire, they will only need 70% of their previous income to live comfortably because they will no longer have the expenses associated with working a full time job outside of the home, such as transportation costs and work attire.  What these individuals forget is that the cost of other items, such as utilities, hobby expenses, and travel expenses, will increase when they are home for a majority of the time.  It is best to prepare for retirement as if you would need the same income that you are making today.

The traditional pension plans offered by many businesses will only cover a fraction of the salary that you were earning when you were working full time, so it is very important that you make a plan to save additional money to finance your retirement.  There are a number of different savings plans that can be used to save for retirement, including 401(k) plans, 457 plans, and 403(b).  The more that is contributed to the plans today, the faster your money will grow and the more you will be able to withdraw during retirement.

Most banking institutions offer a wide variety of different types of bank accounts in order to ensure that they have an account type for every type of customer that walks through their doors.  This selection can make it difficult for a person to know which type of bank account would be the best for their financial situation.  There are a few things that should be considered when looking for a bank account and following these guidelines will ensure that you sign up for the best type of bank account for your needs.

The Average Balance Of The Account

Knowing how much money you intend to keep in the bank account can help you select the right type of bank account for your situation.  If you intend to keep a high balance in the account, then you may be entitled to an account free of any usage fees.  The amount of money that is to be retained in the account can direct your decisions on everything from whether to choose an interest bearing or non-interest bearing account, whether you can meet the minimum balance requirements for certain types of accounts, and whether you will have to pay a monthly account charge for your account.

The Average Number Of Withdrawals Each Month

The number of withdrawals that you intend to make each month will also have an effect on the decision of which type of bank account to sign up for.  Some accounts limit the number of times that you are able to make teller withdrawals, ATM withdrawals, and write checks before the bank begins to charge a fee for each transaction over the limit.  If you know that you will not be going over the established transaction limits, then the associated fees will not be a concern for you.  If you know that you will be making many withdrawals from the account on a monthly basis, you will want to choose an account that does not have transaction limits or transaction fees.

How Many Financial Services You Need

You have a greater chance of getting breaks on the fees associated with bank accounts if you have multiple accounts with the same banking institution.  Having your checking account, savings account, mortgage loan, auto loan, and/or credit card account held by the same bank will increase your standing as a customer of the bank and may entitle you to discounts on the services that you have chosen.

Saving and investing are the only true methods of creating wealth and reducing the risk of financial devastation.  So why is it that many people do not have any savings in reserve for handling a financial emergency or planning for the future?  There are many reasons that may be given by a person to justify why they do not have any savings, but few are a legitimate reason for neglecting to plan for the future.  Here are some of the worst reasons for not saving money for a rainy day.

I Don’t Make Much Money

The most common excuse for not saving money in a savings account is that the person does not make enough money to pay their bills, pay for food, and save money too.  The people that generally use this excuse are people that pay all of their bills first, then they spend money on the things that they want, then they think about saving money as their last priority.  By simply changing the order of this list of priorities, you can begin saving a significant amount each month and increase the balance of your savings account quickly.

By paying your savings account first, you will ensure that you are saving some of your disposable income and you will be less likely to spend your additional money on frivolous items that are not really needed.  You can start small, by having 5% of your paycheck directly deposited into a savings account when you get paid.  If you can save this much each pay period without significantly reducing your quality of life, you can slowly increase the percentage over time to save more money quickly.

I Will Do It Later

Another terrible reason for putting off saving money is that you believe that you will be able to make more money later in life and will compensate by saving more money then.  In a perfect world, this scenario would work out every time, but unfortunately this is not how life typically works and chances are that you will need to have savings to handle a financial emergency much earlier than you would like to think.  Slowing increasing your savings at a reasonable pace over a long period of time is much more manageable than attempting to save large chunks of money at certain periods throughout your life.

I Like Buying Nice Things

Everyone likes to buy nice things with the money that they earn.  That is one of the reasons that so many people work so hard at their jobs day in and day out.  But the desire for nice things should never come at the expense of your financial security and spending money on luxuries before having money in reserve for handling financial emergencies is always going to end badly.

A better way to approach this spending is to make it a point to save as much as you spend.  If you have to have that $100 pair of boots, make sure you place $100 in your savings account first.  This may also decrease your overall spending as you take a second look at what you are spending your money on.