10 ways to tame the money monster

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When was the last time you assessed your debt-to-income ratio, asked your credit card companies to lower their interest rates or said no to that latte because you were saving for college? If you can't think of an answer, it's time to start securing your financial future.

Here are 10 steps to regaining control over your own finances

1 Create a financial file.

Maintain a filing system--hard copy or digital--for every bill you have. Keep a record of when you paid it and how you paid it.

2 Create a household budget.

Figure out how much money you make, how much you pay in taxes and how much you take home. Then track every penny you spend on everything from soda to cookies to pickles. If you are spending more than you earn, it's time to tighten your financial belt.

3 Get your finances in check.

Pay down your debt. (Even though banks typically say you should have no more than 36 percent of your after-tax income tied up in debt repayments, financial advisers say you should try to lower that debt-to-income ratio to about 15 percent). Know your credit score. Stay away from people claiming to be advisers who approach you in church or at the bus stop and don't have an office, a license or a college degree. Pay all your bills on time (late payments can hurt your credit rating). Avoid payday loans. If you do all this, then you can ...

4 Live within your means.

This is the easiest way to secure your financial house. Don't buy more house or more car than you really can afford, no matter how good you think it makes you look. If you can't afford breakfast, then why are you trying to buy a fur coat?

5 Set goals and priorities for your money.

That's right, write everything down. Do you plan to go on a cruise next year? Set a goal of saving $100 a month for the cruise. Plan on sending a kid to college? When the child is born, start setting aside $100 a month into a special savings account. Create a lifelong plan for financing. If you do that, then you likely have opened a ...

6 Savings account.

Remember to always pay yourself first. Take at least 15 percent of your paycheck and put it into a separate interest-bearing account--and don't touch it. That's your mad money or your rainy-day fund. Finance experts suggest you save three months of living expenses for emergencies. Also, check out an online bank such as ING or ETrade, which can offer higher interest rates than brick-and-mortar banks.

7 Do estate planning.

What will happen to your children and your house if you die? It's time to see a lawyer and create a will or trust for your beneficiaries. Be sure that your life insurance and property insurance will cover your debts after you die.

8 Save for retirement.

There are plenty of ways to do this--traditional IRAs, Roth IRAs, 401(k) plans. But don't rely on Uncle Sam. If you save $2,000 a year, starting at age 26, by 66, you could have more than $1 million, provided you invest that money in stocks and bonds that have a certain yield.

9 Slash fees.

If you own mutual funds, look at your fees and try to decrease them, or move investments into index funds or exchange-traded funds (ETFs) with lower or no associated fees. Also, examine your banking fees, credit card fees and application fees for new mortgage loans. Many of them can be negotiated.

10 Diversify.

Spread your wealth between several areas. Invest in a 401(k) at work, maintain a CD at a bank, have an IRA on the side, own a house or two and invest in stocks, bonds and index or mutual funds. That way, if real estate falters (as it has), you'll still have the IRA or your savings account as a safety net.

COPYRIGHT 2008 Johnson Publishing Co.
COPYRIGHT 2008 Gale Group