Resolve to do a financial overhaul this New Year’s

By Sensible Life Editorial Staff
Published December 7th, 2008

These are tough economic times we’re facing, and with New Year’s resolutions coming up, for those of you who make them, add this one to your list. Resolve to keep the resolutions you make and view them as goals for better living. Rather than recovering from a night of partying till midnight, take January 1st to go through all your finances and do a financial overhaul.

List all your bills into at least three categories: Necessities, Supplementals and Luxuries Once you’ve done that, create two sub-categories underneath those: Low Risk and High Risk.

Items going under the Necessities would be the obvious ones such as food, clothing, and shelter. Supplementals would be things like car payments, insurance, electric, water, and other items necessary for comfortable and practical living. Luxuries would be any expense not essential to survival, such as your broadband cable or your Blackberry.

Next, for your subcategories, list your High Risk options. This should be anything that you’re paying for now that could present a risk to yourself or your finances if you stopped paying it. For example, if you drop your auto insurance, you’re breaking the law, not to mention putting yourself at risk for financial recovery in the event of an accident. You could, however, raise your deductible to reduce your payment, or if your vehicle is paid off, you can reduce from full coverage to carrying liability only, which is the minimum required by law. There is still a risk in doing this, however. If you have an accident that is your fault, it will place you at a financial disadvantage for covering the expenses for your damages.

In the Low Risk categories would be things like pet insurance, unlimited long distance services, land line/cell phone, etc. You can get by nowadays with one type of phone or the other, but it’s important to be sure you have an open line of communication. In the event you lose your job, you’ll need a way for potential employers to contact you.

Luxuries are what they are. Things we can do without in the event of a financial crisis. Gym memberships, options on cell phones such as unlimited texting and internet, eating out and going to a movie on the weekends, and that type of thing would go into this category. You can even do the High/Low Risk subcategories based on what you feel is a luxury critical to your mental and physical health and wellbeing.

Once you have your expenses categorized, you’ll be in a better position to evaluate areas you would like to cut back, as well as have a plan of action in the event your income is reduced or eliminated. If you make a point to have these categorized and filed away, you’ll be able to easily see where you can maximize your financial resources by eliminating waste in your spending.

Have a Merry Christmas and a Happy New Year from Sensible Life Magazine!

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