Write a Financial Plan

If you happen to be one of the many folks who are stressed over money, what can you do? Charles Schwab says the cure is to write a financial plan designed to manage your money with smart spending, regular savings, solid planning for the future – and still supports the lifestyle you enjoy. The key is to write it, not just think about it.

According to a Schwab study cited in a Money Talk News article, “Are You Overlooking This Secret to a Bigger Nest Egg?” putting your financial plans in writing can significantly improve your odds of accomplishing financial goals. The report points out that people who have a written financial plan – that is, a personal or household budget – tend to be ahead of the money game.

The idea behind writing budget is that it helps you spend and save your money in a way that makes sense for your lifestyle. If you’re comfortable with your budget on your own terms, you will more likely than not stick to it.

Creating a Budget

Following are five recommendations from mint.com and other online advisers to create a do-able budget.

1. Have a Clear Understanding of Your Spending. You might have an idea of how much you spend each month, but without hard numbers, you don’t have a clear understanding of how much money is really going out the door. The best way to know is to keep a ledger and write down every expenditure, and if possible keep a receipt for each purchase. It may be a pain, but when you tally up a total at the end of the month, you will have a more accurate idea of how much you really spend. You can’t create a budget without this information.
2. Cut Non-Essential Expenses. If your math comes up with a negative number – that is, in the red – you are obviously overspending. The simple solution here is much easier said than done: you may have to slash your spending by cutting back or eliminating such extras as dining out, entertainment or that daily trip to your favorite coffee shop. This will hopefully be temporary while you redirect your leisure-time funds towards paying off debt and getting your budget into the black.

Review your budget monthly to determine whether your spending habits have changed for the better as you pay off debt.

3. Watch Those Credit Cards. A budget killer can be the ubiquitous credit card. While there are many different recommendations on how to reduce credit card debt, one that seems to be both do-able and effective is to pay off one card at a time.

Though it may seem that targeting the card with the highest interest rate would be first, you might actually be smarter picking the card with a balance that allows you to reduce the debt by 20 percent in the shortest amount of time, according to a RealSimple article.

In “How to Eliminate Credit Card Debt,” Curtis Arnold, the founder and editor-in-chief of CardRating.com, explains that decreasing credit card debt by 20 percent could help your credit score. On the other hand, if you’re on a very tight budget, you might try to pay the minimum due each month and then make the same payment again two weeks later. Keep making a payment of the minimum-due amount twice a month until the debt is paid off and you will save a ton on interest.

4. Get Some Help from Online Tools. Try using an online budgeting tool app. Using digital budget guidelines and/or templates is a good way to organize your finances so you can clearly see what is coming in and what’s going out in real time without expending a lot of energy. In addition to mint.com, other sites you might look at are themuse.com, Kiplinger.com, and wikihow.com.
5. Be Committed to Saving. This may be the most important – and difficult – part of your budget. Whether you are saving for personal peace-of-mind, a home down payment, retirement or for someone’s college education, setting concrete but reasonable goals will help motivate you and make saving easier.

An effective way to optimize your savings potential if you are employed is to set up an automatic withdrawal from your paycheck to savings or a retirement account such as a 401(k) so you won’t see the money…or miss it. Keep increasing the percentage of your paycheck that you save as your income increases. For example, if you’re saving six percent now, bump it to seven percent as soon as you can, and then raise it again until you reach at least 10 percent. When you get a bonus or a gift of cash, deposit a chunk of it into savings or your retirement account before you spend it on something you don’t need.

Money Talk News states in its article, “The 10 Commandments of Wealth and Happiness,” that at the end of the day, the key to accumulating more savings isn’t to spend less — it’s to spend less without sacrificing your quality of life. Good advice.