Know Where you Stand

Prior to making any financial transaction, you need to know what is exactly your financial situation and what do you expect to achieve. The usual advice at this point is to be realistic. However, don’t exclude anything and if you have goals you think are too hard to reach, just put them a “long term goal” tag, but don’t forget about them. All your dreams can be achieved as long as you have discipline.

Make a budget and include in it all your income and expenses. Divide expenses in daily, weekly, monthly and yearly expenses so you won’t leave anything aside. You can then multiply the daily and weekly expenses to know their monthly incidence and divide the yearly expenses for the same purpose.

Prepare a report with all your debts. It doesn’t matter who you owe the money, include any loans from family members, friends and lending institutions. Include the loan amount, the due time, interest rate if any, and all the information you have.

Cut on your Expenses and Debt

Now is the time to do some mayor fastening. Analyze all the information included in your budget and tag expenses with the following labels: essential, non-essential, superfluous. The difference between non-essential and superfluous expenses is that non-essential expenses are avoidable but contribute to your well-being, such as gym or yoga classes while superfluous expenses are avoidable and do not contribute to your well being.

Immediately cut on all your superfluous expenses and do whatever possible to cut at least a 30% on your non-essential expenses. Try to find a cheaper gym, or reduce the frequency of attendance to classes, etc.

Make a list with the most onerous outstanding loans and lines of credit you have. Usually Pay Day Loans, Credit Cards, and Personal Unsecured Loans are the most expensive. Try to get a consolidation loan in order to cancel these debts. If not possible, destine as much money as feasible to pay off the highest interest rate loan or credit card first and pay only the minimum on the others. Once the first debt is paid off, go on with the next one and so on.

Before buying anything see if you have the cash to pay for it. If you don’t, then, you can’t afford it and you need to keep that in mind. The second step is to see if the purchase falls into the essential category. If it does and you can’t wait, then buy it. If it doesn’t, avoid that spending till you have the cash to afford it even if you would use your credit card to buy it.