Struggling to get your personal finances in order? You’re not alone. Managing your money is a challenge. At some point, almost all of us have struggled with debt, and getting on track financially means taking control. When you feel in control of your money, it’s a lot easier to make smart financial decisions. This is easier said than done, but if you divide the process into actionable steps, you’ll see that your goals are within reach. How to get back on track, you ask? Let’s find out!
Whether it’s a job loss, a significant decline in your investments, or a large, unexpected expense, everyone faces financial setbacks. If it happens to you, saving money may be the last thing on your mind. These steps can help get you back on track—and back to saving money— more quickly.
Make a budget
Some people don’t believe in budgets, but there’s no way you can get ahead if you’re just winging it. Making a budget is easy but it requires a little bit of work to start. What you want to do is track all your expenses for a month or two first. I mean literally write down or log everything you spend money on – from that coffee you grabbed from down the street to your electricity bill. To create your budget, start with your income, and then subtract any fixed expenses. Now prioritize any savings goals such as vacations, retirement savings, investing, etc. before considering any discretionary spending.
Trim the Budget
Once you have a sense of where your money is going, its time to look for ways to save money. Now, I’m not going to ask you to give up the fun stuff, at least not at first. Instead, I want you to focus on the items you might be overpaying for that don’t bring you any joy.
Most households waste money without even realizing it. The average family could save 400 dollars a year by comparison shopping, just their auto insurance policies.
However, it doesn’t stop there; the average family needlessly spends over 100 dollars on cable. If you have high-speed internet, you can save 50 dollars a month or more going with a live TV streaming service.
Check Your Credit Report
When is the last time you checked your credit report? Never make the mistake of just assuming you have good credit because you make your payments on time or you don’t have a bunch of debt.
Identify theft is a huge problem and there’s always a possibility that someone used your information to take out a loan, open a credit card, or create other debts. Consider signing up with Credit Karma to keep tabs on what debts are owed. This will show an estimated credit score and report every 7 days.
A common misconception is that checking your credit hurts your credit score. You can check your credit score as often as you’d like, but it’s usually not necessary. The Consumer Financial Protection Bureau recommends checking your credit reports at least once a year. Every six months or so should be good.
Stop using credit cards
In order to get your finances back on track, you need to stop accumulating more debt. So lock your credit cards away where they can’t tempt you anymore. You might think you have the self-control to use your credit card wisely, but chances are that if you’re reading this article, you’re already in trouble because of your credit card.
Spending money on a credit card is easier and less painful than using cash. You don’t see the dollar bills disappear from your wallet, so you may not even realize how much you’re spending until you get your monthly bill. And by then it’ll be too late.
Credit card companies will try and tempt you with cashback rewards and airline miles. However, you need to concentrate on fixing your finances before you even consider using your credit card to gain rewards. Credit card rewards are only worth it if you stick to your budget and pay off your balance every month. Otherwise, you’ll end up paying more in interest and late fees than what the rewards are worth.
Make savings automatic
This should be your top priority, especially if you don’t have a solid emergency fund yet. Make it the first bill you pay each payday, by having a set amount automatically transferred from your checking account to your savings (try an online savings account). Don’t even think about this transaction — just make sure it happens, each and every payday.
Beware of little expenses; a small leak will sink a great ship.
Set specific budget goals and timelines.
- I want to be debt-free
- I want to quit my job
- I want to retire
- I want to go on vacation
- I want to have extra money
- I want to pay off all my credit cards
- I want to quit my job in two years
- I want to retire at 50
- I want to go to Australia in the winter
- I want to reduce my debt by $25,000 by December 31, 2019
- I need to make $2,000 a month and reduce my household budget to $1,500 a month to be able to quit my job. I want to accomplish this by June 30.2019
- I need to have a passive income of $1,000 a month and a savings account of $200,000 to be able to retire. I want to do this before my 55th birthday
- I have researched the vacation I want and it will cost me $2,500. I need to have this amount by October 2019 to be able to pay for the trip I want to take in February 2020.
The more specific and time-stamped your goals, the easier it is to plan the course to accomplish them. You must be very clear. Include dollar amounts and dates. Don’t worry about being too enthusiastic or optimistic.
Small steps are key
You may not be able to cut any expenses by $500, but you may be able to identify five monthly expenditures you could reduce by $100. Forgive yourself if you slip up. Sticking to a budget is not always easy, and there may be days when your resolve falters. If that happens, remind yourself of how much you have to gain by reaching your goals. Then examine your spending patterns to see why you overspent. You may need to modify your budget or your behavior—if you can’t go into sporting supply stores without buying something, stop visiting them.