Many people start diets to get in shape during the spring. Looking to get your finances in shape also? Below are a dozen financial management strategies to consider:
Do a Savings Analysis--Determine how much money is needed to fund future financial goals. For example, if you need $12,000 for a new car in four years, you'll need to save $3,000 per year or $115 per bi-weekly paycheck. Break large goals down into smaller do-able pieces.
"Pay Yourself First"--Implement automated savings methods such as direct deposit of your paycheck, payroll deductions for a credit union or 401(k) plan, and automatic investment plans offered by a mutual fund or company direct stock purchase program. With the latter, your bank checking or savings account is debited monthly for the amount of share purchases.
Accelerate Debt Repayment--One way to accelerate debt repayment is to obtain a PowerPay analysis from Rutgers Cooperative Extension offices across New Jersey. PowerPay will help you save money by allocating the monthly payment from debts that are repaid to remaining creditors. The cost of an analysis is $2.50.
Develop a Spending Plan--A spending plan (a.k.a., budget) is a written plan for spending and saving money. Forms to create one are available through Rutgers Cooperative Extension. Basically, you total all income sources and all monthly expenses, including one-twelfth of the annual cost of occasional expenses like property taxes. Adjust the figures until income = expenses + savings.
Organize Your Financial Records--Make a list of important financial data such as: names and addresses of financial advisors, insurance policies, location of important papers, and bank and investment account information. Share this information with one or more family members.
Calculate Your Net Worth--Net worth is household assets minus debts. Try to calculate your net worth annually to measure your financial progress.
Determine Your Marginal Tax Bracket- Then use this information to make investing decisions (e.g., tax-exempt municipal bonds versus taxable corporate bonds). Marginal tax bracket information can be found on the Web site www.rce.rutgers.edu/money/taxinfo.
Check Your Credit File- New Jersey residents can get a free report annually from every major credit bureau. For a form to request a copy of your credit report, see the Rutgers Cooperative Extension Web site listed above. If you find erroneous information, request a correction in writing.
Maximize Tax-Deferred Investing Opportunities--Examples of ways to reduce income tax are: employer tax-deferred retirement plans (e.g., 401(k)s), IRAs, self-employed plans (e.g., SEPs), and the long-term capital gains tax rate on investments held for more than 12 months.
Periodically Review Insurance Coverage and Cover "Large Loss" Risks--Examples of "big ticket" risks that can devastate a household's finances are liability, major damage to a home, and the loss of a breadwinner's income due to death or disability.
Maintain and Develop Your Earning Ability--Often people can increase their earning ability by taking college courses, computer training, or other programs that improve job skills. Another recommended strategy is increasing your financial literacy through personal finance classes held at Rutgers Cooperative Extension and adult schools, financial publications, and Web sites.