If so, you are not alone. Between the economy and the high cost of goods as well as our consumer driven American culture, getting ahead financially can seem difficult.
However, the best way to grow your wealth is to make a financial plan and stick to it.
Steps to Take Before Creating Your Financial Plan
Before you start making changes, take a few weeks to record your every expense. This will help you understand how and where you spend your money. If you do this faithfully, you may be surprised to find you are spending more money in certain areas than you thought.
Creating Your Financial Plan
After you record your expenses for a few weeks, it is time to write down a workable plan. Consider the following expenses:
- Recurring fixed monthly expenses such as rent or mortgage and a car payment, for instance
- Recurring variable monthly expenses such as gas, entertainment, and groceries
- Irregular expenses such as car insurance and renter’s insurance. These are expenses that you pay on a yearly or semi-yearly basis. You should always compare home insurance rates from a service like http://www.comparethemarket.com/home-insurance/ to make sure that you are getting the best bank for your buck.
Then, divide the irregular expenses by 12. For instance, if you pay $750 a year for car insurance, you will need to set aside $62.50 per month to pay this expense.
When you first set up your financial plan, don’t try to be overly money conscious and cut items unrealistically. Your first month on a financial plan, try to make it realistic.
Also, expect that your plan will most likely not work, at least right away. If you have had trouble managing your money for some time, your behavior won’t change overnight.
Continue to track your expenses for the month.
Evaluate How Your Financial Plan Is Working
At the end of the month, compare your actual spending to your financial plan. You will see areas where your budget was not realistic and areas where you overindulged.
If you are spending more than you are earning, you will need to either cut expenses or increase your income. Doing a combination of both may offer some breathing room.
When looking to cut expenses, examine every line item on the budget. If you own a home, consider remortgaging. Call around for quotes on your car, home and life insurance and see if you can get the same coverage at a lower rate. Call your credit card company to see if you can reduce your interest rate.
There are several ways you can increase your income including asking your boss for a raise, creating a side gig, and selling extra stuff around the house. A more long-term approach is to increase your sources of passive income. Passive income does not happen quickly, but once you have the income streams, you can get ahead financially more quickly.
Creating a workable financial plan is not something that occurs in one day. Expect to spend at least 3 months to find a balance between your plan on paper and what you actually spend. However, as you become more and more comfortable with the guidelines of your financial plan, you will find yourself in increasingly better financial shape.
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