The pace of modern life is fast and the sheer speed of it all can be stressful. Most people have enough trouble fighting the daily dragons that swoop in to try and take a bite out of our personal finances. There’s no need to add to all that stress with self-inflicted financial mistakes and yet, for millions of people, the most serious challenges they face are often those they impose on themselves.
This reminder is probably coming at an inopportune time for many with the new iPhone 6 hitting the market. At the risk of being a stick in the mud, here are my suggestions to help make sure that your finances aren’t keeping you up at night.
Maintain An Emergency Fund
Sometimes when new iPhones roll out sometimes emergency funds become mysteriously depleted. This is also the time of year when many families have just written hefty tuition checks and the holidays will be upon us in less than 100 days. A lack of emergency funds is a ticking financial time bomb. It’s not a case of if you’ll get caught short, it’s only a matter of when. The size of your emergency fund depends on your lifestyle. If you own a home I recommend keeping enough to replace a central A/C unit and do emergency roof repairs. For renters who will not need to shoulder such expenses, having enough to replace the transmission in your car and cover your insurance deductible is usually adequate.
Stick To a Budget and Track Spending
The biggest mistake most people make consistently is not visualizing their finances. Big ticket items are rarely the great destroyer of personal finances; it’s the drip-drop of small, daily expenses that leave you perpetually short of cash. Tracking expenses, taking time to enter that information into a spreadsheet, will make you face that myriad of small expenses that would otherwise be easy to forget.
Avoid Debt
This is harder now with tuition rising much faster than inflation, but it’s still shocking how much debt Americans casually incur. The numbers are astounding and, according to TransUnion 2014 is going to be a banner year for consumer debt. Debt service is a huge expense in the budgets of a majority of people who are paying interest on a house, second mortgages, a car loan, credit cards, student loans and personal lines of credit. It’s collective insanity.
Publicize Your Financial Plan
I don’t mean make it public, but co-opt friends and family by passing the word that you have financial goals. When the people closest to you know you have a plan, they’ll be less likely to try and tempt you away from your goals. Posting your plan in a prominent place in your home, like on the refrigerator door, will reinforce the reminder. Your plan, coupled with close monitoring and tracking of your expenses, will keep you on the right financial path. You need to view every expense in light of your goals. That doesn’t mean you should never eat out, go to the movies, or splurge; just make sure those expenses stay within the budget.
Reward Yourself Occasionally
Instead of buying things on credit or charging them, save up for the things you want. Paying cash is a keen reminder of the sacrifice that’s really necessary for the things you want. You will take care of the things you really sweated to obtain and obtaining those goals without dipping into your emergency fund or going into debt feels absolutely fantastic.
These aren’t just ideas that come from reading financial articles, I lived all of these five suggestions for more than 30 years. Today my financial goals are less specific and I regularly pad the emergency fund with extra cash, but I still, more or less, follow that outline. There isn’t anything we could purchase that would feel as good as being debt free and it’s great being on the side of capitalism where companies pay to borrow your money.