Get Your Finances in Order for 2009

As everyone in the world knows, saving money is the number one topic of conversation today. My latest e-book gives you clear, concise methods to get your finances in order for the coming year.

 
Create an actual budget on paper.

The single most important thing you can do to clear up your financial picture is to create a budget. Many people think it’s alright to follow a vague budget in the back of their heads. It certainly isn’t. You won’t be able to see what else your money could be doing for you without examining what it’s doing now and what your short-term plans for it are.

Start by gathering every receipt you have for the past year. If you don’t have an entire year at your fingertips, go back as far as you can. Don’t forget to include miscellaneous expenses like birthdays, anniversaries, car maintenance and things of that sort. From there, create categories for various monthly expenditures and add everything that falls into the category together. Divide by the number of months you used to get your numbers, and you have your monthly budget for each category.

It’s incredibly important to make sure that you have the income to cover all the categories added together. If you don’t, look through your budget and see where you can trim some fat off your spending. Decreasing spending in one category can give you extra money for another. Subtract your cost of living from all sources of income; now, hopefully, you have a positive number. If you don’t, you’re digging yourself into debt.

 
Build in “fun money.”

Sure, everyone could save thousands of dollars if they never left the house, but a budget that is too rigid will break under the pressure of everyday living. Creating a budget should be a step toward financial freedom, not a step toward eliminating all fun from your social life. Don’t be afraid to add a miscellaneous or fun category to your budget that you don’t have to account for. I’m not saying it’s wise to exceed that amount (ALWAYS stick to your budget), but there’s nothing wrong with taking your family out to dinner once in a while, getting coffee with a friend or buying the occasional DVD as long as you’ve planned for it in advance.

 
Take a good look at what you really need around the house.

There are plenty of things you can do to trim the fat from your family’s entertainment budget.

Does your house really need a landline? Getting rid of that $50 a month bill can save you $600 over the course of a year. Also comb through your cell phone bill to see if you can change to a package that has fewer minutes. Even if the difference is $10 a month, that’s another $120 to put back in your pocket.

If you have an internet connection, you may not need to have cable television at all. Websites like Hulu.com or Veoh.com feature your favorite TV shows without infringing copyrights, so you can watch episodes without worry. Another $50 savings per month is $600 you haven’t spent by the end of the year.

It’s important for your children to be involved with extracurricular activities, but there’s no need for them to sign up for every sport, play or school club that’s offered to them. American families tend to be overscheduled these days, so dropping even one activity will save you money and give your family a chance to breathe and enjoy each other’s company. You could start a family game night, start a family project (like creating a family cookbook or putting together a family photo album with all the old pictures you have in your attic), or play games out in the back yard. The time together will do everyone good.

 
Do not scrimp on emergency savings or insurance.

I’m a huge advocate of shaving off every corner you can in order to save money, but there are some things you don’t want to neglect. The first item is an emergency fund. In these rough economic times, you want to be able to cover at least six months of your family income if someone should lose their job. Once you have six months in the bank, you may want to aim for nine. There’s no question that things come up, you just need to be prepared for them.

You also want to make sure that everyone has the right amount of insurance coverage. Collision insurance on your car can be sacrificed if your car is old and not worth covering. Life insurance, however, needs to be in place if the unthinkable should happen. Make sure that everyone in the family is sufficiently covered—if your family has a stay-at-home parent, the surviving spouse would need money to cover taking care of the children and other household duties, so don’t think just in terms of the breadwinner.