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Use new year to organize personal finances
Cindy Williams
Jefferson County Extension Agent, FACS and 4-H Youth Development
Use the start of the new year as a chance to organize personal finances and plan spending and savings for the coming year. Establish personal financial goals by determining net worth, minimizing bad debt and increasing savings.
A net worth statement is figured by adding the value of everything a person owns, which are their assets, and subtracting the value of everything they owe, which are debts or liabilities. A net worth statement gives people an idea of their financial situation and helps pinpoint areas that should be changed. Net worth statements should be compared every year to see if financial situations are getting better. If not, adjustments to spending and saving habits will need to be made.
Debt has many negative connotations, but it's important to remember not all debt is bad. Good debt allows people to buy things that have potential to increase in value in the future, such as education or a house. Bad debt, such as credit card debt, is the kind that need to be paid off as quickly as possible. With credit cards, it's best to pick the card with the highest interest rate and pay it off first. Set up a system to pay off the rest in a timely manner.
Many people have trouble saving money because they think they have too many expenditures and no money to set aside. This usually isn't true because research says people usually can find 20 to 25 percent of their spending that could actually be saved. A way to find this money is to keep track of spending for a few months to find the money "leaks". These leaks could be little things such as buying lunch daily. If people would take their lunch to work several times a week instead of eating out, the extra money would add up over a year and could be put in savings.
Another reason people have trouble saving money is because they can't distinguish needs from wants. For many people this requires thinking about each purchase and whether it's necessary or not. Get into the habit of saving a fixed rate from each paycheck, such as 10 percent and try to increase it each year. The ultimate goal would be to save 10 to 15 percent.
An important part of organizing personal finances is checking progress frequently. Be sure to set check points quarterly through the year to review development and alter plans that aren't working.
Date: 1/5/04
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