Are money problems keeping you up at night? We often worry because our money life has become a mystery even to ourselves. We don’t really have a good idea of how much we make and spend, so anxiety creeps in. I hope to provide some relief, and better sleep, by sharing with you the five necessary steps you must take today to get control of your finances once and for all.
Now, let’s keep in mind that we all have different money problems. Some people simply don’t get paid enough. Others have a weakness for shoes, and so we spend too much time and money at the mall. And, there is also the possibility that you are going through a financial crisis, like a layoff, a divorce, or a slow season in business.
Whatever your situation is, the following five tips will empower you to reduce anxiety and be in control.
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#1 Embrace Living on a Budget
Taking control of your finances starts by creating a budget. I know! I said the “B” word. Believe me, having a plan for how you are going to spend your money can reduce a lot of stress. I like to think it this way: Just like any successful business runs on a budget, we also need to run our own household on a budget.
I am talking about a written plan that details all income and expenses. Not talking about the kind of budget that only exists in our minds and never materializes on paper. If you do not have a budget or any idea of where to start, get a copy of The Budget Pad. This is a free tool that I created to help my financial coaching clients organize their money and expenses. You can download it free here.
If you don’t embrace the idea of living on a budget, you will be in a constant state of financial anxiety. Overdrafts and growing credit card debt will become your never-ending nightmares. Having factual information about your spending will empower you to make better decisions with your money.
#2 Understand Your Actual Income
Step two to get control of your finances is to really understand how much money you have coming in. Let’s say that you make $50,000 a year. You divide it by 12 months and assume that your monthly income is around $4,160. If you go ahead and spend like you make $4,160 a month, I have bad news for you. You will run out of money!
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You need to factor in how much money you are paying in taxes, Medicare, and Medicaid. Also, consider how much you are putting aside for retirement if that is the case. Budget with the actual take-home amount on your paycheck. Don’t budget using the amount of your annual salary.
So, going back to our example. Let’s suppose that you are paying about 20 percent of your income in taxes. That means that instead of living off $4,000, you have more like $3,200 left. And, if you are putting 10 percent or $320 away for retirement, that lowers your monthly income to $2,880. That is a huge difference!
#3 Understand Your Actual Expenses
The third essential step to get control of your finances is to know your actual expenses. Use your budget to make a list of everything you spend money on. And please, don’t come up with random numbers, estimates, or figures. We need actual information.
If you have never budgeted, you may not have this info. In that case, put together a list of expenses from the previous month and base your estimations on that. This is a detailed breakdown of everything you spent money on, from the mortgage or rent to movie tickets. It helps a lot to pull your bank, credit card statements, and purchase receipts.
And because I am a debt-free advocate, I do not use credit cards. My husband and I use one debit card to make all our purchases. This is an easy way to keep an accurate record of what we spend on. If you use cash for your daily expenses, you should keep your receipts.
I definitely discourage you from using credit cards. It is tough to budget when you charge purchases today but have to pay them next month. Not to mention the risk of racking up tons of credit card debt.
#4 Evaluate Your Spending Habits
Once you have done your budget and understood your actual income and expenses, it is time to evaluate your spending. This step is crucial to get control of your finances. Making a budget or spending plan would be useless if we do not check how we are actually doing.
Evaluating your spending will help you realize where your money is going. Also, it will show you if you are spending more than you made or if you were able to save.
One month I realized that I was way overspending on groceries. And not only that, I was visiting the store almost every other day of the week!
Staying on top of my expenses has also shown me that we spend too much money on the
Identify the areas where you are overspending and cut down for the following month. You may also realize that there are expenses you underestimated. For example, gas prices went up and busted your budget. So, know that in the coming months and until the prices go down again, you will need more money for gas.
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#5 Make Budgeting a Habit
By now, you understand how much you really bring home and what your actual expenses look like. The crucial fifth step to get control of your finances is making budgeting a habit.
I know that budgeting might not be fun. But if you want to start saving money, pay down debt, or invest, you really have to get control of your spending. Having a plan and sticking to it is the only way to achieve your goals and be in control of your finances.
In Conclusion: 5 Necessary Steps to Get Control of Your Finances
As a financial coach, I genuinely believe that you must follow these five steps to get control of your finances:
- Embrace Living on a Budget
- Understand Your Actual Income
- Understand Your Actual Expenses
- Evaluate Your Spending Habits
- Make Budgeting a Habit
Being in control of your money will definitely reduce stress and empower you to make decisions to change the course of your financial life. If you need expert advice please don’t hesitate to reach out to me. As a Ramsey Solutions Master Financial Coach, I help people simplify their finances, save money, and pursue their daydreams debt-free.
I would love to hear what you think about these five recommendations. Do you agree with them all? What else would you say is essential to taking control of your finances? Drop me a line in the comments section at the end of this page. I answer them all personally!
And if you enjoyed this article I would love it if you help me get the word out by sharing on social or pinning it.
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- $5,000 Paid Off in Credit Card Debt by Going Cash-Only
- How to Save Money and Stop Living Paycheck-to-Paycheck
Also, if you want to dig deeper, I would totally recommend that you listen to my podcast episode on how to be the boss of your money.
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