The Simple 5-Step Plan to Complete Money Management
Do you struggle with managing your money? Is staying on top of your finances complicated and time-consuming for you?
If so, follow the simple five step plan below — and the calculators and tools suggested for each — to get in control. With these simple tools, you have everything you need to make sure you're achieving your financial goals. (See also: Painless Ways to Manage Money With a Partner)
1. Create a Debt Elimination Plan
This is the most important tool. You can't build wealth and win the money game as long as you're in debt.
This tool lets you track all your debts in one place, so that you have a good grasp of your overall financial picture. The beauty of this tool is that you can run different payment scenarios, such as determining the order you want to off your debts. This lets you see how fast you can get out of debt, and how much money you can save in interest payments.
Debt Elimination Calculator (Google Sheets)
2. Develop a Budget
The next tool you need is a budget. This lets you see how much money you're bringing in and how much you're sending out.
With this tool, you can tell if you're overspending, which leads to debt. But it'll also show you if you're spending within your means, which creates a cushion to help you get ahead financially.
If you're overspending, you can instantly see where you may want to cut expenses. And if you're spending within your means, you can think about the many possibilities you have for spending the extra money (such as the occasional splurge).
Budget Spreadsheets (Google Sheets)
3. Improve Your Credit
If you're like most people, you need to get around town with a car, and you think about owning a dream home. Unless you have the cash to pay for these in full, you'll probably need to take out a loan. And that means you'll pay interest.
To save the most amount of interest, you'll need a good credit score. Let's say you take out a 30-year mortgage on a $200,000 house. Comparing the difference between a score in the best range with the worst range (According to myFICO as of May 2014), you'd save over $68,000.
There are several "free" sources of credit scores (you've heard the jingles and seen the commercials). While those services may provide some value, they do not actually report the credit scores kept by the three major reporting agencies.
To get those scores, visit AnnualCreditReport.com. You're entitled to one free report from each of the three bureaus per year.
4. Create an Investment Plan
Investing is one of the best ways to build financial security for your future.
And the biggest determinant of your investing results is your asset allocation, which is how you decide to split your money between stocks and bonds. (See also: The Basics of Asset Allocation)
So how do you decide on yours?
Most of the major investment services offer lots of calculators and tools to help you figure it out, but here's one:
With this knowledge, you can make investing decisions for accounts such as your 401(k) and IRA. Better yet, you can revisit this tool when circumstances in your life change, and see if this changes your proposed asset allocation.
5. Track Your Net Worth
The last tool you need is one that'll keep track of your net worth. This is important because it'll show you how you're doing overall in the money game. It'll help you stay focused.
For instance, if your goal is to leave your day job once you become a millionaire, this tool will show you when you've reached that target. Then you can stop working and enjoy more time with your family and friends!
Here, you have two options.
If you want your net worth calculated automatically and don't mind storing your personal account information online, a site like Mint will do the job for you. It can also help with budgeting, and paying your bills on time, and preparing your taxes.
But if you don't want your personal details kept on the web, here's a spreadsheet you can use:
What tools do you find most helpful in staying on top of your finances? Please share in comments!