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Life Ed: 5 Simple Steps to Financial Sanity

Our guide this week is Brittney Castro, a certified financial planner, and the founder and CEO of Financially Wise Women. Here, she shares her five simple steps to achieving financial sanity.

Be Realistic

I see a lot of people in their twenties stuck in a vicious cycle of student loan and credit card debt. They get so overwhelmed they either give up on managing it and spend too much on dining out, clothes etc., or they try and allocate all their available cash to debt payments, leaving no cash cushion for emergencies. Here’s the thing: At different stages in our lives we face different challenges and manage different priorities, but we can get a handle on them if we think realistically and have a plan.

Get Organized

  • Use online bill pay or automatic transfers so you don’t have to worry about remembering to pay your bills or incurring late fees.
  • Set up corresponding calendar alerts so you can double-check your statements and payments for accuracy.
  • Make saving a habit instead of a choice: automate your savings.
  • Use these online tools:
  1. Mint.com can help you track your budget.
  2. Creditkarma.com can guide you on your credit score.
  3. Bankrate.com checks current interest rates on savings accounts and credit cards.
  4. Readyforzero.com can help you pay off debt faster.
  • Put your budget reviews on your schedule just like a business meeting.

Know The Rules And Know You Will Bend Them

Here’s your basic budget guideline for your after-tax income:

  • 50% for fixed expenses (no more than 28% of that for housing).
  • 20% for financial goals: debt payments, investments, savings.
  • 30% for variable expenses – that’s lifestyle.

Now, maybe you face a change in your employment status or find yourself starting a family. That budget starts to look a little less tidy. Don’t let budget rules put you in a panic. Use them as a guide and realize your priorities will shift as you move through life’s stages. That’s OK.

Not All Debts Are Created Equal

Prioritize what you owe. It’s not a fun fact that buying things on a credit card is an expensive way to live. That sweater you bought 3 years ago for $50 on a credit card with 19.99% interest rate, wound up costing you $108.30 (that’s assuming you had a minimum monthly payment of $1 for the 3 year period). So, start by making additional debt payments towards your credit card bill with the highest interest rate; pay minimums on the rest. Once the debt with the highest interest rate is paid off, move on to the second highest and so on.

The Best Laid Plans

Flat tires and dental bills are a fact of life. In personal finance it’s recommended that you have a cash cushion of 3-9 months of your monthly fixed expenses. So, if your fixed expenses are $3,000 per month, you aim to build a cash cushion of anywhere between $9,000-$18,000, depending on your comfort level, job security, etc. That sounds like a lot, I know. And for many it’s unrealistic. So, here’s the thing: what can you save? Start there. Even if it’s $10 a week, that’s still one step in the right direction.