It’s no secret that the economy is taking a downturn. As financial institutions tailspin, homes foreclose, businesses downsize, and gas and grocery prices skyrocket, many of us are starting feel the pinch and some of us may be starting to feel a bit of financial panic. Now more than ever, is a great time to start learn about financial planning. With some expert help, Latina.com put together a survival guide to get you started.
1. Assess your current financial state. Make a list of all of your assets, income, and expenditures. The easiest way to do this is to carry a small notebook with you for a month and write down everything you spend your money on. Then, list any investments, savings or debt. You’ll be able to look at the big picture and see where your money is going.
2. Make a budget. Using your list of expenditures, see where you can cut back. You’ll be surprised to see how little things can add up in a big way. For example, let’s say you’re spending $4 on a coffee drink every morning. That can add up to $1460 a year! Take a look at where you are spending excessively and find ways to cut back like bringing lunch to work, joining a carpool, or limiting expensive purchases. (Some areas where you should not cut back: health insurance and retirement savings like 401(k)s or IRAs.) Then, make a budget that allows you to live within your means. Make sure you include room for saving and paying off debt (see below). If you’re not good at organizing a budget on your own, get software like Quicken or MS Money to make it easier. If you think sticking to your budget will be difficult to maneuver, keep on tracking all of your purchases in your notebook so you know your limit.
3. Build a financial safety net. Having savings to fall back on is all the more important in these rough times. You want to make sure you have 3-6 months of your income ready in case of emergency. The general rule of thumb is that 5-10% of your paycheck should go into a savings account. The FDIC insures accounts of up to $100,000 in case a bank fails, so if you have more than that in any account check it against BANKRATE.com to make sure it’s safe.
4. Get out of debt. Most experts agree that it’s a better idea to pay off debt than save. The reason? High APR's, like those of credit cards, mean you end up spending a lot more in the long run than what you earn from say, a savings account. Once you have a comfortable safety net saved, you should start paying off as much of your debt as you can, starting with the highest APR’s. If you are in over your head with debt, be wary of scams that offer you an instant solution. Go to NFCC.org and find a credit counselor to work with.
5. In case of emergency, seek help. If you are facing a housing crisis, find a housing counselor at HUD.gov If you are facing unemployment, or serious financial troubles, check out GOVBENEFITS.gov