Ten Steps to Financial Freedom

Every year, millions of Americans resolve to such things as quitting smoking, shedding a few holiday pounds, spending more quality time with their families, etc. Reportedly, as many as 40 to 45 percent of American adults make one or more resolutions and according to the U.S. government (www.usa.gov) saving money and paying off debt are among the most popular New Year’s Resolutions. In fact, paying off debt ranks at number two and saving money, number three.

For those committed to getting control of their finances, Texas Credit Union Foundation (TCUF) Executive Director Jill Pharr offers the following advice:

1. Know your own big picture.

Analyze your overall financial situation including income, assets, savings, and debt. Keep in mind that experts recommend three – six months living expenses in savings to cover that inevitable rainy day.

2. Write it down.

You have to know where you are spending your money in order to control your spending, so keep a “spending diary” for a period of time – ideally a month. You may be surprised at what you find. For example, that daily latte could set you back a whopping $780 per year! Do you eat out for lunch every day? If you spend just $5 a day for lunch every day, that totals just over $1,800 a year!

3. Take charge of your money matters.

Once you understand your overall financial situation and where your money is going, it’s time to make decisions and start planning. The most important decision you and your family must make is to live within or below your means. That means spending less than what you make. Diet experts tell us that losing weight is pretty basic – you must take in fewer calories that you burn in a day. Managing your money is no different. The good news is that with your new plan, you will be accumulating wealth, instead of amassing debt!

4. Set realistic goals.

Like many things, you didn’t get into this situation overnight, and it will take some time to get control. It’s important to set not only short – term goals, but also medium and long – term goals – and write them down!

5. Build your plan and check up on yourself.

Using your income and bill payment schedule, you can develop and effective spending plan. If possible, schedule your bill payments evenly over your pay schedule. Some creditors will let you adjust your payment date to help with your cash flow. You should monitor your plan daily or weekly at first, then monthly. Doing so will help keep you on track. If you fall “off the wagon,” don’t stress, but rather just get right back on. Remember also to build some rewards into your spending plan. For example, if you stick to your plan for the month, plan a modest reward for yourself or your family. If you are unsure how to organize your plan, ask a financial advisor at your credit union.

6. Pay yourself first.

Even if you are swimming in debt, try to set aside just a small amount each payday to get started. If your employer offers a 401K or other savings plan, sign up for it. Additionally, with automatic deposit options at your credit union, you can have part of your paycheck deposited directly into a separate savings account, which will make savings practically painless.

7. Pay off those credit cards.

Money managers agree paying off credit cards is the most important shift you can make. While you might be inclined to tackle the higher balances first, you’d be better off to pay your smaller balances off first, as it will give you some quick success. When those are paid off, use that money to attack your larger balances. If you are considering a bill consolidation loan – be wary. Many times, these come in the form of very high interest rates. Another danger is that people may pay off their credit cards, and then go back to old spending habits, along with the bill consolidation debt. If you decide to consolidate your balances, it’s a good idea to cut up your credit cards. If you find you have freed up some dollars with consolidation, use this to pay down the debt and set some money aside for savings.

8. Protect your credit.

Start by getting your credit report – and credit score. If there is inaccurate information on your report, take measures to correct the information, as negative information affects your score, which affects your ability to get credit. If something unexpected happens and you are unable to meet your obligations, contact your creditors right away rather than waiting. While most people tend to wait until they are far behind in payments, you will have more options if you contact your creditors right away.

9. Remove the temptation.

In other words, stay out of the stores and skip the Sunday supplements. If you do go shopping and see something you “just can’t live without,” wait 24 hours. Go back and look at your plan, then decide how essential it is. Make a list before you go shopping. Clip coupons and review the store specials before you leave the house. If possible, leave your small children at home. However, if you do take your kids, use it as a teaching opportunity, and get them to help you choose the best value products. It’s never too early to teach them what everyone needs to know.

10. Get help if you need it.

If you have trouble sticking with plans, or understanding the complex world of finances, don’t be afraid to ask for help. There are many money management classes available through your credit union, consumer credit counseling, community groups and churches. Again, if you choose a consumer credit counseling service, be sure they are reputable. If you need someone to help you stay accountable, ask them. You are not the first, nor the last to need help with your money.

“Millions of Americans struggle financially, but it’s never too late to get on a solid financial path. With discipline, commitment and hard work, we can all learn to be better managers of our money,” says Pharr. “The most important thing is to stay focused on the prize – accumulating wealth and being in charge of your own destiny!”