Most of us have at least a few issues surrounding our finances. Maybe our parents weren’t so great with their money, and we picked up some bad habits. Maybe we are harboring some weird beliefs deep within that lead us to make poor choices when it comes to spending. The reasons can be varied and complex. If your financial life is in a bit of disrepair, and you have reached the point where you know something needs to be done, congratulations–because that is the first crucial step. You have fully acknowledged the problem, and set an intention to change.
If you haven’t already, you have to take full inventory of your financial situation. Add up all of your debts to get clear on what you truly owe. Get out a piece of paper, and write down all the financial issues that are troubling you, whether it be the amount of debt you have, trouble paying bills, worrying you are not saving enough, flimsy retirement contributions, out-of-control spending or over-indulgence in retail therapy.
Check your credit report and go over it carefully. It is easy to assume such an important document would be free of errors, but mistakes happen. If you see any inaccurate negative information, such as a late payment that really wasn’t late, an account in collections that you paid in a timely manner,etc…get on that right away. Read up on how to craft effective credit dispute letters—it can make all the difference in getting the issue resolved to your satisfaction.
This part may be kind of uncomfortable because it requires you to truly face the problem, and take responsibility. But, it is necessary. You need that full clarity on the problem before you can begin to solve it.
Regardless of what we want to achieve in this life, we need to set some specific goals—this allows us to execute a more effective plan of attack. It motivates us, keeps us on track and makes things ‘real.’ Without any specific financial goals, we just have some generally vague musings about reducing our debt, saving more money or being more financially responsible. And vague won’t cut it, especially when it comes to something like managing money better.
So, think back to your ‘problem’ areas that you identified earlier. What sorts of goals could you set that would make you feel accomplished, that will make you feel good? Remember not to go crazy here—go too drastic and you will end up failing, and when this happens, we tend to kind of give up altogether rather than modify.
Perhaps you can vow to pay down at least one credit card in the next few months, or save a particular portion of your paycheck by setting up an automatic transfer to your savings account at each pay period. Decide you are finally going to start saving for that trip you have always wanted to take.
Perspective is everything in this life, and if you can learn to look at a budget in a different way, it will be much easier to stick to one. See it as something helpful, not something hindering you and ruining your good time. The word has a negative connotation, but a budget is simply a money management tool, and a crucial one at that. So, it can’t be overlooked in a post about the core considerations for getting back on track financially.
The problem people have with budgeting is actually putting a good one together. It may seem a bit tedious to crunch those numbers. It can be a bit uncomfortable when you clearly see your financial life spelled out in such detail.
Write down how much money you are bringing home every month, and then all your fixed expenses like rent. What are you spending on food each week? Is it more than you think you should be spending? If so, how can you cut back? Perhaps you should commit to cooking healthier dinners than relying on really expensive organic prepared foods, for example.
Once you have gotten all the necessary expenses out of the way, how much money do you have left? How are you normally spending this money? Where can you make tweaks? This part can be tricky because you don’t want to go to extremes, but you also have to prioritize restoring your financial health.
So, don’t vow you will put every free dollar towards your debt, unless you are feeling particularly motivated to scale back over the next several months. There is no magic formula—you know where you are spending too much, and what constitutes reasonable. Be honest with yourself, and modify accordingly.
It may also help to focus on one improvement at a time. You will make a bigger dent, and it will motivate you more. For example, you might just want to focus on building up your emergency fund over the next few months, and then move onto paying down your credit cards.
One of the most important things to remember, no matter what strategies you adopt, is realizing that the past does not dictate the future. Just because you have been bad with money in the past, does not mean you are destined to be forever. Things will change so long as you decide they will.