The Valenzuela Law Firm is beginning a series of posts to provide members of the public with general information regarding how to better manage their finances, pay off bills, and avoid the typical mistakes that we see happen within our practice. We want to give advice on ways to improve your financial situation. It’s a new year and time to start a new approach on your finances!  

In an effort to reach as many people as possible, we ask that you share our posts with your friends and family and encourage them to also follow the series of posts by liking our page! Our plan is to post at least one tip/suggestion per week.  

#1 Budget. Such a simple thing and yet most people do not have a budget. Write down everyone you owe, how much you owe them, and what the minimum payments are. Include every bill that you pay on a monthly basis, including utilities and living expenses. 85% of our clients have no idea who they owe or how much they owe. When you know what you owe, you can make a plan on who to pay and in what order to pay your bills.

Once you know who you owe, figure out your income. Calculate how much you bring home on a monthly basis, excluding any overtime or bonuses you may receive. Your income should exceed your bills, even if by a small amount.

Now, you’re ready to determine what to pay and when.

ALWAYS pay your mortgage first, then your necessary living expenses, such as electric, water, cell phone bills, and groceries. Then figure paying your minimum payments to your credit cards, loans, and other non-necessary-for-living bills. Then figure the luxury payments, such as cable or satellite.

Any money that is left over should be divided. Figure out how much money you want to save each month for an emergency fund and put that amount into a designated savings account. An amazing fact is that nearly 70% of Americans could not handle a $400 emergency expense without using credit. The general rule of thumb is to have at least 3 months worth of living expenses saved. Although that might seem excessive, having an emergency fund would provide a safety net for an unexpected medical emergency, a loss of a job, the replacement of an air conditioner, or other unplanned expense. Before attempting to pay off your debts, set up your emergency fund.

If, once you calculate your income and subtract your necessary living expenses, you do not have any additional monies left to cover the non-necessary-for-living bills, bankruptcy may be an option for you.

To set yourself on a debt free path, start paying those credit cards and loans off. Start with the one with the smallest balance first, while paying the minimum payments to the others. Pay as much as you can to the smallest account each month until it’s paid off. Once the smallest is paid off, roll that payment over to the next smallest, adding it to the minimum payment you were paying, until it is paid, and so on. Once a card/account/loan is paid off, do not use that account. While we typically would not suggest cancelling a credit card -as having a $0 balance will help raise your credit score-, if you’re unable to fight the urge of using a card, cancelling it might be in your best interest. Only you know you and whether you should cancel your card.

Saving money and paying off your debt can seem overwhelming and to be an impossible task. Having a written budget is the first step to achieve your goal of living debt free. Proper planning and dedication will yield amazing results! It’s a new year and time to put yourself on the right financial path!