Those four steps are fairly simple but you might be surprised at how often they are violated. The number of Americans who have an accurate inventory of personal assets is in the single digits. It is fairly simple to so an inventory. Make a list of everything you own. Leave out anything that is leased or where owe a debt on the payment. Track your expenses with a simple check register or even a notepad. Just write down what you buy and how much it costs. You might be surprised at how much you do not buy when you have to write it down. It might not be worth the trouble. Paying off debt might be a better move than investing. Your interest rates on your debt are likely higher than your rate of return on your investments. That means you are literally going backwards.
Finally, never borrow money for things that you cannot sell to recover the cost. Clothes, food, tech gadgets all depreciate faster than you can imagine so pay cash or do not buy them. Cars are often mandatory for American life. A loaded Mercedes Benz is not! Buy a used car and buy it from a private person to avoid extra fees and markups from the dealer. That way, you are more likely to own a vehicle worth what you borrowed on it. Real estate is often the one area where it is considered acceptable to go into debt. The real estate is often worth at least as much as you borrowed and, if you hold onto it long enough, will likely increase in value.
Making smart personal finance management choices is easy. Sticking to those choices is a challenge because the positive results are not always realized. Be patient with yourself. Stay focused on the big picture and stay out of the online shopping sites.
Popular online resources to personal finance management can be found at Dave Ramsey and Suze Orman. Nope, neither of these millionaires know me and they certainly did not pay me to mention their names. Both are master marketers with a bit too much wow and not enough how in their work but they can certainly help you find direction and motivation.
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Personal finance management is all about planning. In other words, success in managing your finances is based on smart strategy. Smart strategy means an informed, deliberate, goal focused method to achieve the result you desire. Achieving the result you desire is the foundation of building your success, your way.
If success at personal finance management is a measure of the success of our nation then, as a nation, we are failing miserably. Less people than ever know how to balance a check book. Even less balance the books, even if they know how. Self discipline has been replaced by more immediate desire for increasingly expensive material items. It is only after we feel the frustration and fear of being broke that we rethink our foolish ways and consider the old, traditional, true methods of building wealth and personal finance management.
Success at managing your finances is not rocket science. Spend less than you earn. Make smart purchasing decisions, buy what you need, buy a little of what you want, pay off debt, save, save, and save some more. There are world famous, millionaire, radio talk show and TV hosts making millions out of stating the incredibly obvious. That fact tells us something about your need for constant reminders and motivation about the long term value of proper financial decisions. Consider these four foundational steps:
- Take and maintain an inventory of your assets, including cash and physical items.
- Track your expenses closely. Those nickels and times really do add up.
- Pay off debt and stay out of debt.
- Never borrow money but if you do, be sure the asset is worth more than the loan.