Are you in need of a full financial recovery this year? If yes, then you need to start making some smart financial goals that will help make that happen. There is nothing that you can do about the past and any mistake that you have made. What is important right now is how you will rise up to patch the ruins that is left of your once healthy financial life.
Signs your personal finances require a full recovery
The FederalReserve.gov released a report in 2013 that showed how the household net worth had been increasing since 2009. From $59.39 trillion in 2009, it is now at $77.25 trillion in the third quarter of 2013. That is a huge growth that is helped by the slowly recovering economy.
But here’s the thing: not everyone can feel this financial recovery. While the job market is strong, there are people who have yet to experience a break when it comes to their own financial comeback. If you think that you are one of them, you may want to ask yourself the following questions first:
Is your monthly expenses greater than your income?
Do you find yourself using your credit card for basic necessities?
Can you only find enough money to pay the minimum of your credit cards?
Are you paying for your bills by taking out payday loans or similar debts?
Does your paycheck run out before the next one arrives?
Is it getting difficult to keep track of all your credit payments?
Have you depleted your savings and even your retirement plan and you still have a lot of credit obligations?
Have you checked your credit score and is it lower than when you last looked at it?
If your answer to most of these is a yes, then you are in dire need of a financial overhaul. You need to do this while the economy is still in good shape. The opportunities are cropping up and this should be a good time as any to seriously put your personal finances back on track.
4 steps to make a financial comeback
Fortunately for you, there are ways to help make your finances healthier than it had ever been. You just have to follow this simple 4 step plan.
Step 1: Learn from your mistakes
The first step involves some debt and financial analysis. What you want to happen is not just a financial recovery. You also want to make sure that you will not be placed in the same position again. it is important for you to stop making the same deadly financial mistakes that got you in this situation in the first place. Obviously, you were doing something wrong. Some people avoided credit card debts just fine but failed to save up for emergencies. That got them started with their debt dilemma. Some people were really overspenders. These are the things that you need to identify. When you have listed your mistakes, you know how to move forward.
While you are analyzing the mistakes of the past, you should also assess the extent of the damage that you made. This is how you start to become proactive about your finances. You need to understand what exactly needs to be fixed and what has to be let go. For instance, if you think that your home is beyond your capabilities, then just let it go to foreclosure. Try to salvage what is left after.
Step 2: Set your goals
When you have identified the problem, the next step is to set your goals. These goals should not be the vague “get out of debt” targets. You need to specify your goals so it will indicate what you specifically want to happen, when it has to happen and what you will do to achieve that.
The ways you construct your goals will spell out how you can effectively implement it. When you have clear targets, it is easier for you to identify if it can be achieved. It will not be a problem for you to determine if it is realistic or not. You need to be as detailed as you can so you can anticipate future problems that could cost you the financial recovery that you are hoping for.
These goals can be to eliminate 2 credit card debts completely while continuously paying the minimum of the rest. Your goal can also include building a three month emergency fund – or even six if your finances can handle it. By detailing your goals, you can determine the sacrifices that you have to make in order to make these goals a reality.
Step 3: Equip yourself with knowledge and tools.
The third step involves equipping yourself with the right knowledge and tools that will help you reach your goals.
Let us begin with the knowledge. The NFCC.org revealed some interesting facts about the financial literacy of Americans. Apparently, 78% of adults believe that they will benefit from additional information about personal finances from a professional. In 2013, 40% of the respondents in the NFCC survey gave themselves a C, D or F for their personal finance knowledge. Clearly, a lot of people need to learn more about financial management. If you have yet to experience financial recovery, you may want to check your financial knowledge. You may be one of those who need to learn more about managing their money.
For the tools, you have a lot of options before you. Beginning with the plans, you may want to use budget plans, spending plans and debt payment plans. These tools will help keep you on track as you try to reach your goals. Not only that, you should research the debt relief programs that can help you pay down the credit obligations that is keeping you from a full financial recovery.
Step 4: Follow your plan
When you have gone through the first three steps, you are now facing the hardest part – the implementation. The previous steps are all in preparation for this final step that will require you to do a lot of hard work. If you fail in this step, your efforts will be for nothing.
This is the time when you will implement your budget, spending and debt payment plans. If you are working with a debt relief expert or a financial planner, this is when they will be of most help. You need to practice the right habits that will help you stay away from another financial ruin.
Remember that this four step plan will only be effective if you are successful in the last step. Your financial recovery involves more than the debt that you will pay off. It lies in how you will build up your assets and stay away from credit obligations.
Habits that will help maintain a good financial health
Banking2020.com reveals an infographic that only one third have given thought to long term plans for saving and investments. Also, 2 out of three adults have a working budget plan. In light of what we have gone through, these three will help you create a more secure financial recovery. It is important that you keep yourself from concentrating too much on debt payments. Give room for saving, investments and an effective budget plan.
As there are habits that will make you a financial failure, there are also habits that will make you a success. Here are some of them.
Budget everything. The more detailed it is, the more you can control your finances.
Monitor your credit report. Even if you are being careful with your debts, you need to look at this regularly to keep watch against identity theft.
Think twice (or even thrice) before you spend your money on something that is not necessary.
Commit a portion of your salary to go to your saving goals – no matter what.
Build up your emergency fund that will last you for no less than 6 months. Make it as long as it takes for you to feel secure.
Start saving aggressively for your retirement.
Invest your money in stocks, bonds or mutual funds. It is high time you start growing your money in other baskets.
Financial recovery takes time so do not feel discouraged when it seems like things are going slow. You want to make your plans realistic and within your financial capabilities. Try to set up milestones to help encourage you. These small successes will make you feel like you are going somewhere with your financial recovery plans.