1. Give away 10% of you total income each month. In the church, this 10% is called a “tithe”; but you can call it “contributions,” “gifts,” “donations,” or whatever you like. The reality is that giving sets in motion a plan for looking at your entire financial, social, and spiritual life. Most people “waste” 10% or more of their income already on frivolous, superficial, and unnecessary things. When you give away the first 10% of your income, you are better prepared to eliminate the superfluous expenditures and will more carefully utilize the 90% you have as operational funds.
2. Establish a small “splurge fund” as part of your budget. Pull out no more than 5% of your income at the beginning of each month and stash these funds in a coin purse. Use these funds in any way that you wish during the month; but when the splurge fund is depleted, cut off all unbudgeted expenditures for the remainder of the month.
3. Pay all of your ongoing and regular expenses at the time of purchase or immediately when billed. This is a hard rule for most people to follow, but it provides the initial discipline necessary to get your finances in order. Interest rates, late-payment penalties, and other extra charges take large portions out of your operating income and end up reducing your buying power. If you cannot pay these ongoing and regular expenses each month, you are living beyond your means. You will need to develop a budget that focuses on necessities and reduces your other expenses.
4. Pay down your debt as quickly as you can. Every dollar that you borrow costs you that dollar plus the interest that you have to pay—and the interest costs are applied every single month until the debt is paid. Every dollar that you pay against your debts reduces your future interest payments and allows you to pay off your debts more quickly. Generally you should focus on paying off the debts with the highest interest rates first. Your goal should be DEBT FREE! Another way of eliminating debt is to focus on your smallest debts first. Pay extra each month on that small debt until you have eliminated that debt. After one debt is eliminated, take what you had been paying on the eliminated debt and add that amount as an extra payment on the next smallest debt. Continue to use the eliminated debt payments on remaining debts until you are debt free.
5. If you can’t pay for it now, maybe you can’t afford it. Most of us have “things” that we feel like we must have or we can’t be happy. We have a difficult time separating our “needs” from our “wants.” It’s the “wants” that give us the most problems financially. You should never borrow or over-extend your budget for “wants.”
6. Borrow wisely and only when absolutely necessary. Most people will have to borrow to pay for large purchases like a home or a car, but everything else that you buy should be paid in full at the time of purchase. If you use a credit card, you should pay the full amount due every month. Interest rates on credit card debt are very high. If you can’t pay off your credit card balance each month, shred your credit cards (or removed them from your wallet or purse) and operate on a “cash only” plan. Your goal should be to pay-as-you-go for all your ordinary expenses.
7. Plan for the long-term. The biggest problem in most people’s financial planning is the failure to plan ahead. Major expenditures like buying a car or home or paying college tuition for your children require long-term consideration. Preparing for retirement is important as well. If you postpone planning for these kinds of expenses, you will have to go deeper in debt somewhere down the road. On the other hand, if you save money in a savings account, invest in stocks or mutual funds, or add to your retirement plan, you will be better prepared when major expenses come along. Even just a little bit put in savings or investments regularly over a long period of time will create a resource that will help you over the big humps in life and will sustain you in good times and bad.