Personal finance is not a rocket science, rather personal finance is one of the most simplistic application of rules, based on human needs. Which runs on a basic principle of spending lesser than the earning, to take care for the retirement days, when earning stops. Rightly so, getting personal finance in order is also not a very difficult state to achieve, however chaotic it currently is in.
Whatever decision you made so far, whether it is contributing in 401(k), spending too much on a credit card or buying that sock which only lost its value since you have bought it. All that can be reverted, and yes, within a day.
I take stock of my earning and spending every year, which includes taking stock of our investment portfolio. I described the process in in the post, shepherd or sheep herder, story of your money. That process does not take an entire day. A few dedicated hours is just enough.
How to Choose the day?
- First and foremost, you need to select a week day, when banks are open. Don’t worry about the paid leave you need to take. The day’s effort shall pay you back many times over.
- You need to have a working internet connection and a phone line.
The way you manage your finances determines your ability to meet most of your requirements. It also determines how effectively you can make savings, get out of bad credit and become rich. Here is a clear account of how you can get your finances in order in a day.
Review your spending
Unless you know how are you spending your money, you can’t change your spending habit. If you do not identify a past spending as unnecessary, you can’t control impulse buying.
I listed this one at the top, to emphasize the importance of this task. This can change your life, if you determine flaws in your spending habit and take appropriate actions to rectify.
There are various ways to review tour spending, if you are a budget guy, unlike me, you can review your records and notes. But, I assume my readers are computer savvy and maintain online financial accounts. All banks and credit card companies are required to give you access to your last 12 monthly statements, at the least.
You can, most probably, find out a couple of items to cut cost on. We never knew our wine bill was $100+ for last 3 months, it was discovered very recently. Now for a family of two, who are not in to much drinking, raking up $100 on wine bill is too much.
(Related – finding a balance between earning and spending)
Do you really need that Netflix subscription? Or, have you really used the gym regularly in last few months? See if you can cancel the memberships.
Draw a family budget
Honestly, it doesn’t take more than a couple of hours. here’s all you need to know about drawing a annual budget. A disclaimer, I am not a budget guy. I don’t setup budget.
Budgets do not work for me. I am much more comfortable in setting aside 50% of my income (we are single income family) in to various investment accounts and spending the rest in whatever way we like. After a few months, if we see some money left in our spending account, we plan for vacation. It’s just a reward for ourselves for saving more than adequate amount.
If you are a budget personal, do take this day to make a systematic budget. You can go in to as much as detail as possible. You can use a piece of parer, a note book or a spread sheet in your computer.
Read or consult
No, I am not asking you to read my archive on your PF day. Although you may get a few articles that may help you. But, I am talking about reading a few well known books on personal finance. Here’s the greatest list of top 10 personal finance books. Don’t buy them, you can get it in the library, visit the library and read them. At least one of them.
If you buy, you may never read it, also some cost is involved there too.
You can also consult with a financial planner, in case you decide to do this on your PF day, do fix an appointment in advance. Be prepared and take all the records of your earning, investment and spending. Also, it’s very effective if you can note down all your questions before meeting your financial planner.
Review your bank account
As I recently posted my horrible experience with a frozen BofA checking account, It is extremely important that you take a look at your checking account(s). Logon to your account online, or visit a local branch for few mins. Is there a message or notification awaiting your attention? Is there any change in policy announcement in your mail box?
On our PF day (if I can call this day a PF day) we even visit our bank locker and take stock of jewelries and valuables. We take picture of the vault with our cell phones, in case…
Are you paying monthly fee just to have your checking account open? there are plenty of banks that do not charge any money for keeping a checking account with them.
Are you vulnerable to over draft charges? If yes, then check for banks with lower over draft fee. Visit local bank branches and ask for the details. Sometimes banks do offer sign up bonus, that’s an easy $100 in your pocket.
Having a interest paying checking account (specially with credit unions and online banks) is by far your best alternative to big national banks. I keep small amount in our BofA account as they do not pay me interest. I have our entire emergency cash in interest paying capital one account. I do have checks, but I don’t need them.
Check your credit
I recently checked my credit report and found one address wrongly listed. I disputed that entry with Experian and successfully got it removed from my records.
Reviewing your credit file shouldn’t take more than 30 mins of your time, and it’s free. Logon to annual credit report website, to obtain your credit report, they shouldn’t charge you, unless you want to see your score as well. Check out my Credit Score category, you’ll know why having accurate information in credit file matters.
Any anomaly could affect your rating and score which will affect your ability to secure future loans. Even, now a days employers do check credit history, so is the case with apartment association.
Make an investment
I know this is easier said then done. But really it isn’t. Check out my post saving 1 Hour of daily wage, this is the magic of compounding return. Even a tiny investment on a regular basis becomes a huge chunk of money in 20 – 25 years. You start small, may be even with a $100. Open a retirement saving account, may be IRA or a Roth IRA.
I recently set up a peer-to-peer lending account with Prosper. That account is set up for automatic investment from my checking account every month. Prosper does offer “quick Invest” feature which invest my money in a preset category (A and B category, signifying borrowers with best credit history), without my intervention.
We are getting more than 6% return since last 4 months or so. Read more about various investment options. This investment account could be very well for your child’s education, or for your next car.
Negotiate for lower rate
Be it your car insurance, or home insurance. Even you can lower your health insurance premium too. When you start shopping around, you may, to your surprise, find a competitor offering you lower premium to get your business.
It’s OK to switch, as long as the new insurer is also well known. These days almost all providers offer better customer service, just to stay in the business. You can only gain by comparison shopping.
Are you paying too much mortgage, check to see if you can get a refinance. True, refinance is not one day’s job. But you can start on PF day.
I listed some of the tasks. Now it’s up to you to decide which one(s) you would try on the PF day. You may finish all of it in a day. Or, you can only try the things most important to your situation right now.
Whatever you do, I encourage you to take action now. Plan for it and get your finance in order, get moving now!