You’ve paid off your debt and you finally have you finances under control. Congratulations! You’ve done something that many other Americans have been unable to do. You faced your debts head on, found ways to pay them off and are now debt free. You’re worrying less about your finances and sleeping better at night. You’ve started rebuilding your credit and life is good.
The new challenge
But now you have a new challenge. You need to keep your finances under control and not get hijacked by debt again. Here is what you must do.
- Set financial goals
- Build a financial safety net
- Learn to live with a budget
- Manage your credit
- Work on your money management IQ
- Find financial advisors
Set financial goals
Now that you have your debts paid off and have money available don’t start spending it without creating some financial goals. You should have three categories of goals – short-term, medium-term and long-term. Your short-term goals should be those that you can accomplish within the next six months or at least less than a year. This could be putting a certain amount of money into an emergency fund, having enough money to join a health club or taking a nice vacation.
Goals that you believe you can accomplish within the next five years would be your medium-term goals. This could be things such as putting money down on a home, putting a certain amount of money into your retirement account or paying off an auto loan.
You need to have long-term goals or those that will take you more than five years to accomplish. This could include having enough money to retire, sending your kids to college, or buying a vacation home.
And finally, here’s a video with more information on how to set and keep financial goals.
Create a financial safety net
The second thing you need to do is go about creating a financial safety net. This means building up your savings so that you would have enough to cover your living expenses for at least six months if you were to became ill or lost your job. This would put you in a position where if you did have a financial emergency you could pay cash and not have to use credit, which could put you right back in the debt hole you just dug out of.
Learning to live with a budget
You probably used a budget to help you get out of debt. But you can’t just toss it away and start winging it. While your budget numbers will be different then when you were carrying that big load of debt, it should have the same purpose as before – to help you allocate your money smartly and to know when you need to reduce your spending. Plus, you can now use that budget to help you achieve your financial goals.
Managing your credit
Now that you have your debts paid off, the last thing you want to do is create any new ones. The best way to do this is to pay cash for everything you can. If you do use a credit card, make sure you can pay off your balance by the end of the month. If you need to get a new credit card, comparison shop and get one that offers the best terms. Finally, make sure you check your credit report every six months so that you can get any problems corrected.
Your money management IQ
Smart money managers are not born. They are created. You can get smarter about money and increase your money management IQ through many different resources. There is a wealth of information available online these days about money. Here are some resources you could use to start your education.
- Bankrate.com (www.bankrate.com)
- Kiplinger’s Personal Finance magazine
- CNN Money
- USA Today Money
- Yahoo! Finance
In addition, there are some very good books on money management.
- Frugal Living For Dummies
- Home Buying For Dummies
- Investing For Dummies
- Managing Your Money Online For Dummies
- Personal Finance For Dummies
Get some financial advisors
If possible, you should put together a team of financial advisors to help you manage your money. You should probably have a certified public accountant (CPA) that can help you with your savings and investment strategies and reduce the amount of income tax you will owe each year. You might also find a financial planner. They usually provide a lot of the same services as a CPA but can go a step further and help you actually create a plan to achieve your financial goals. A good financial planner will also help you implement your financial planning strategies. He or she will identify the financial issues and problems you should address and then act as a sounding board when you are getting ready to buy a home or make some other major purchase.
It’s also important to have adequate insurance. This is an essential part of managing your finances and protecting you and your family from loss. An insurance agent or broker should also be part of your team. Her or she can advise you regarding your insurance needs, assist you in finding the best insurance and help you if you run into any problem with your insurance company.
How to find reliable advisers
The important thing isn’t just to find financial advisors it’s to find ones you can rely on. You should meet with several different CPAs, financial planners and so on to find out how they work, how they charge for their services and to see if the chemistry is right between the two of you. You might also ask your friends, family members, your banker or some other financial advisor for referrals.