“It takes as much energy to wish as it does to plan.” – Eleanor Roosevelt
Planning for budgets, credit reports, and loan payments is certainly not as enjoyable as time spent imagining six-figure salaries, overflowing bank accounts, and early retirement on a yacht.
Financial planning is not fun. Even if you love to geek out over balance sheets, I’m sure you can easily think of other things you’d rather be doing. For most of us, personal finance is incredibly daunting and onerous. This is especially the case for those with variable incomes — such as first-time entrepreneurs, freelancers, and creative professionals running a small business — as well as those moving through major life transitions like marriage, kids, buying a home, or retirement.
Breaking through the process with less pain, here are finance guru Galia Gichon’s tips for closing the gap between you and your financial goals.
1. Know your vitals
Having a constant grasp on your financial status comes down to four words: OWN, OWE, SPEND, EARN.
Know these numbers and check in on them regularly. How much do you own in assets, including bank accounts, stock, land, and other property like art? How much do you owe in student loans, credit card debt, and your mortgage? How much do you spend per month? Earn per month? Per week?
2. Use budgeting apps
Find the right tracking tools to keep tabs on your spending. Try Mint, YNAB, BUDGT, or check and see if your bank has its own app. These tools break down your spending and set up custom limits for categories like groceries or going out. Use the information it provides to create a spending plan, then stick to that budget by setting up notifications for warning you when you’re close to your limit on, say, bar tabs or online shopping.
3. Plug 5 unnecessary expenses each month
Cutting out excess spending is an easy way to boost your “own” number and keep the “owe” digit down. There are plenty of ways to isolate those dollars and keep them unspent, such as calculating a weekly cash spending allowance or automatically depositing 20% of your paycheck into a separate savings account.
One of my favorite hacks for trimming spending is plugging five places where you don’t need to spend money, such as dining out, beauty treatments, or the gym. If plugging saves you $20 each time, keeping $100 extra in your pocket each month, over 10 years you’ll have saved $18,000 simply by slimming your non-essential spending.
4. Make short-term goals and tell a friend
Answer the question, “Where do I want to be, financially, in six months?” Then tell someone what you want to do.
Whether you need to save $3,000 for down payment, increase your credit score, or rollover your old 401k/IRA, make sure these are specific, bite-sized, achievable and fit within your long-term plans. Sharing these short-term goals with a close friend is a good way to get feedback and hold yourself accountable.
5. Don’t ignore your credit score
Credit scores are crucial for many adult milestones — renting an apartment, getting a new job, applying for a business loan. A low score means delaying or losing out on life’s big opportunities, as well as paying high interest rates.
Check your FICO Score — out of 850, anything above 700 is excellent — and make sure it’s accurate. Half of credit reports contain mistakes, so dispute wrong items and check it annually. To increase your score, pay bills on time, request a limit increase on your credit card, pass up store charge cards, and avoid too many inquiries.
6. Dig out of debt
The only way to fix debt is to fix your spending. If you keep running into debt, be proactive about changing the way you use money. Stop using credit cards; live on a cash-only basis. Consolidate to one credit card, ask for a lower rate, and stay away from teaser rates (you can find credit cards with permanent lower rates at bankrate.com). Use a debt calculator, like smartmoney.com, to look at your options for paying it off.
To learn more, tune in for Galia’s workshop on creativeLIVE. The personal finance workshop is directed towards individuals looking to develop healthy money habits for their careers as entrepreneurs, freelancers, and artists.