Want to regain control of your finances? You don’t need to make big bold moves. Small, yet powerful, steps are often the key to reducing financial stress.
When faced with financial uncertainty, it seems everything is insurmountable. By taking a step back, you can gain a better view of what needs your utmost attention. Bear with me, these steps aren’t the typical tactics you’ll discover elsewhere. The goal of this article is to help you better understand your current financial situation. And also provide you with some quick wins to boost your motivation.
Here are 10 steps to regain control of your finances.
1. Calculate your Net Worth
Let’s start with the big picture and find out your net worth. Your net worth is by far the most powerful and most important financial wellness number. It provides a snapshot of your wealth and financial health.
Net worth is the value of your assets, minus the total of your liabilities. Basically, net worth is what you own minus what you owe. Your net worth does fluctuate base on increases in your savings rate, asset accumulation, and debt obligation.
Calculate your net worth by:
Net Worth = Assets (what you own of value) – Liabilities (what you owe)
If your net worth is positive, it means you have enough assets to cover your liabilities. Having a negative net worth means you may not have enough assets (savings, investments, or items of value) to cover your liabilities. Negative net worth can increase the likelihood of experience future financial stress.
Do you know how much debt you hold? If you’re holding too much debt in relation to your income, it can be a sign of future financial troubles.
Knowing your net worth will help you identify areas to address such as increasing income or decreasing debt. Use apps like Personal Capital to help you calculate your net worth. Personal Capital net worth tracker is a useful tool allowing you to connect all your accounts into one place.
2. Calculate your Debt-to-Income Ratio
Now, how are you doing with debt? Your Debt-to-Income ratio is the percentage of your gross monthly income that is used to pay your monthly debt payments. It’s used by lenders to determine your ability to pay existing debt and if your income can handle another monthly payment.
If you’ve added all your income before taxes, you can then divide your total debt to your income to calculate your debt-to-income ratio (or DTI).
- Step 1: Add your monthly bills (rent or mortgage payments; alimony; child support; student, auto, or other fixed monthly payments; credit card minimum monthly payments; other debts)
- Step 2: Divide the total of your monthly payments by your monthly gross income (income before taxes).
- Step 3: The result is a percentage called your DTI ratio. The lower your DTI the less risky to lenders.
Additionally, knowing your DTI can help you understand the potential risk you’re taking when applying for a new loan. Keeping your debt at a manageable level is one of the foundations of financial wellbeing.
Want to lower your DTI? Increase your income or pay off debts to reduce monthly payments. You can reduce monthly payments by consolidating your credit cards. Consolidation loans offered by Payoff is helpful. But if you’re looking for other means, Tally is a good alliterative as a debt manager offering a credit line to manage your payments.
3. Calculate your cash flow
Can you cover your expenses with your current income? Real cash flow management involves understanding where your money comes from, where it goes, and what choices are appropriate in achieving goals and living your best life.
Your cash flow includes:
- Income–salary, bonus, hourly, self-employed, passive or investment sources.
- Fixed Expenses–costs over which you have little monthly control. For example, rent, mortgage, and utilities; the bills come in every month
- Discretionary Expenses–you make choices and therefore, more control can be exerted. For example, you can shop at discount stores rather than premium name brand stores
Calculate the Net Cash Flow
Adding your total income and expenses creates your personal cash flow statement. This is a component of budgeting. This helps you see a clear picture of your monthly finances.
Subtract your total monthly income and total monthly expenses and you can calculate your Net Cash Flow.
Total Monthly Income – Total Expenses = Net Cash Flow
If your net cash flow is positive, then you have extra money to put towards your financial goals. If your net cash flow is negative, it may be time to cut back on expenses and increase income.
4. Identify your income sources
Do you know where all your money comes from? For the majority of people, your income comes from a job. Each payday you receive a paycheck in exchange for your time and contribution to the operation of a business.
Others may have additional income sources such as government benefits, alimony, dividend payments, or rental income.
It’s important to list all the sources of your income whether they are weekly paychecks or quarterly dividends. If your income is solely dependent on one source you may need to consider finding additional ways to generate income.
Identify Your Income Sources
- Create two columns on a sheet of paper.
- List all your sources of income in the first column.
- List the amount of income pre-tax on the second column.
This is an important step because it’s an introduction into the many ways you can earn income. You don’t simply have to exchange more of your time. There are 7 different types of incomes streams.
5. Access your free credit report
There is one website federally mandated by the United States government. To access your free credit report from all three credit bureaus, go to AnnualCreditReport.com.
Enter your information and answer the security questions. You’ll then get access to one or all three of your credit reports.
The federal law mandates every US person may receive a free copy of their credit report once every 12 months. These are your complete credit reports. It’s important that you review the information on your credit report annually to ensure the accuracy of the information.
Pro Tip: Pull one credit report every 4 months and verify the information. For example, in January pull your Experian credit report, then on May pull your TransUnion report, and in September pull your Equifax report. Repeat the cycle.
What should you look out for? Look for inaccurate or outdated information. Dispute the inaccuracies directly with the credit bureau.
Now, here are some tactical things you can do to regain control of your finances.
6. Get your free credit score
There are many types of credit scores available. The most famous is the FICO credit score. FICO scores are generated by a non-credit bureau company called FICO. They created an algorithm that determines your credit risk through a 3 digit number.
Many lenders use FICO scores but increasingly using other credit scoring methods. There are a growing number of creditors, financial institutions, and financial services apps offering consumers access to credit scores including a FICO score.
Use a free credit score app with monitoring, alerts, and identity protection. Find your options in the phroogal marketplace.
7. How to clean your email inbox
Our inboxes are overflowing with offers and newsletters. This is digital clutter. To improve your financial life be mindful of your email subscriptions and opt-ins. Use the tactics below to clear out your inbox and improve your communication.
Create separate email addresses
Family and Friends –Your first email address is for your family and close friends. Email is still a great way to communicate with others about important events and milestones.
Banking Providers and Financial Apps – Use a second email address for your banking providers and creditors. A separate email address can be an added layer of protection for your financial accounts. You’re not using the same email to access your bank accounts as you do your Facebook account.
Paid Subscriptions – A third email address can be used when you subscribe to paid services such as Netflix, utility companies, cellular services, etc.
Newsletters, Deals, and Opt-ins – There are times you may want to subscribe to a newsletter to get deals so keep these in a separate email address. Archive receipts from purchases or forward them to Paid Subscriptions email.
It may seem easier to create folders with your existing email instead of creating new email addresses. We’ve found separate email addresses keep the email communication line clean and may help to curtail identity theft risks.
Clean the inbox clutter
Unsubscribe from newsletters that you haven’t read in the past 30 days. Opt-out of unnecessary email messages that add to your inbox clutter. Having a strategy can improve your access to timely information and speed your response time.
8. Stop prescreened marketing offers for credit
How do you regain control of your finances? By ensuring you’re not being marketed for services you do not need. Many companies that solicit new credit card accounts and insurance policies use prescreening to identify potential customers for the products they offer. Prescreened offers — sometimes called “preapproved” offers — are based on information in your credit report that indicates you meet criteria set by the offeror. Usually, prescreened solicitations come via mail, but you also may get them in a phone call or in an email.
If you decide that you don’t want to receive prescreened offers of credit and insurance, you have two choices: You can opt out of receiving them for five years or opt out of receiving them permanently.
To opt out for five years: Call toll-free 1-888-5-OPT-OUT or visit optoutprescreen.com.
The phone number and website are operated by the major consumer reporting companies.
To opt out permanently: You may begin the permanent Opt-Out process online but required to mail in your signed permanent opt-out election form. After permanently opting out, your name will no longer be eligible for inclusion on lists for Firm Offers of credit or insurance.
9. Find missing money and claim it
Regain control of your finances, by finding money. Missing money is unclaimed money from old accounts that have been forgotten. For example, you may have opened an account at a local bank in your college town and left a few dollars sitting in the checking account. Or you may have worked for an employer and contributed to a 401(k). Other circumstances include unclaimed insurance payments, pensions, bonds, or other investments.
Typically, when funds are unclaimed they are sent to a State’s treasury department and logged waiting to be redeemed by the rightful owner.
6 Websites to Find Your Missing Money
- MissingMoney.com – this is an official channel to find money that private organizations have sent to the state. Make sure you look up your name in each state you’ve lived in. Most states use this website.
- Unclaimed.org – is managed by the National Association of Unclaimed Property Administrators of many State Treasurer departments.
- Pension Benefit – this government agency tracks any corporate or federal pension that have never been claimed.
- IRS Refund – if you had a refund that was not claimed or undeliverable, you can search for it on IRS.gov.
- 401(k)s Search – Find lost 401(k) programs from your past employers through the National Registry for Unclaimed Retirement Benefits.
Watch out for people who will charge you money for simply saying they discovered your name in a record. They can’t claim the missing money for you. You must do the work and verify your identity to claim the missing or lost accounts.
10. Register for the Do Not Call Registry
The National Do Not Call Registry is a government registry that allows you to enter your home and cell phone numbers to prevent telemarketing calls. Thirty-one (31) days after registering your number you should no longer receive telemarketing calls.
There are some exceptions to the rule:
- File a complaint, whether you are registered, anytime you receive a recorded message and not a live person.
- You can still receive calls from some organizations such as charities, political organizations, and telephone surveyors.
- You can receive calls from debt collectors even if you are in the registry.
The National Do Not Call Registry gives you a choice about whether to receive telemarketing calls at home. Most telemarketers should not call your number once it has been on the registry for 31 days. If they do, you can file a complaint with the FTC. You can register your home or mobile phone for free.
The US government does not sell your number to telemarketers. Telemarketers are barred from using automated dialers or recorded messages.
How to Register Your Telephone Numbers
- You may register your home number and your cellular number.
- There is no deadline to register your phones.
- Once registered your number remains active in the registry unless canceled.
- There is only one National Do Not Call List operated by the Federal Trade Commission.
- Register on the National Do Not Call Registry by visiting www.donotcall.gov. To register by telephone, consumers may call 1-888-382-1222: for TTY call 1-866-290-4236. You must call from the phone number you wish to register.
Congrats! You’ve made it through 10 steps to regain control of your finances. Want additional financial tactics? Read my latest: Financial Wellness Tactics to Achieve Your Goals
