This guest post is by Ali Luke, from Aliventures.
Do you wish you had a better grip on your finances? Perhaps you know that you’ve got problems—you’re always in your overdraft, or you’re barely able to make the minimum payments on your credit card—but it’s tempting to keep your head in the sand.
Maybe you’ve been getting by like this for years: never feeling financially secure, but never wanting to face up to the gap between where you are and where you want to be.
Money can stir up a lot of strong emotions, like fear, pride, hope, and—when we’re struggling—guilt.
It doesn’t need to be like that. You may have made mistakes in the past, but most other people have too. We all get things wrong sometimes. Rather than feeling paralyzed by guilt, focus on taking simple actions to change your financial future.
Find out where you stand
This is the hardest step for many of us.
Open up your bank statements, bills—anything you’ve been avoiding. Get the big picture:
- How much money do you currently have in your checking account, in savings, and elsewhere?
- What debts do you have, including student loans, credit cards, and so on?
- What’s your monthly income?
- What are you spending each month, roughly?
Get as clear as you can about where you are. Don’t judge yourself, or anyone else involved. However bad the situation, it can be changed.
Cut your costs
Go through a bank statement, and look for any monthly payments. There’ll be plenty of big-ticket items, like your rent or mortgage, but also some smaller ones like:
- broadband, TV, and phone packages
- subscriptions (to magazines, DVD rental services, and more)
- gym memberships.
Can you cut any of these costs? A lot of people find they’re making monthly payments for services they never even use: magazines that they don’t read, or health clubs they don’t visit.
Can you reduce your spending in other areas? Perhaps you’re reluctant to give up your home internet access and TV shows, but you could downgrade to a cheaper package.
Although it often doesn’t feel like $10/month makes much difference, it adds up; if you can save $10/month in three different areas, that’s $360/year—enough to cover emergencies or simply make the festive season more affordable.
Sign up for internet banking
If you don’t already access your bank account over the internet, talk to your bank and get set up. It’s easy to keep on top of your money, and set up and cancel payments if you can do it from work or home at any time of day.
Once you do have internet access to your bank account, I’d suggest setting a regular time to check on things—at least weekly, to begin with. That way, you can keep an eye out for any unexpected payments and spot potential problems quickly.
Keep a spending log
You’ve got some fixed monthly bills, but where does the rest of your money go?
Don’t worry if you only have a vague idea. It’s hard to keep track of all the little items that you buy: a coffee here, a sandwich there, an occasional newspaper. When you’re spending a few dollars at a time, you probably barely think about it. But those small amounts are adding up.
A spending log is simply a recording of everything you spend. I like to use a spreadsheet for this, divided into columns to show different categories (like “groceries”, “eating out”, and “transport”).
To be really useful, your spending log should:
- include everything you spend—even the small items, and even things you pay for in cash
- contain enough detail to be useful, which might mean noting down what you bought at the coffee shop, rather than just writing “coffee shop – $7”
- be updated daily (if you leave it more than a day, you’re likely to forget some purchases).
Once you’ve tracked your spending for a month, look for any results which surprised you. Are there any areas where you’re spending a lot of money unnecessarily? If you’re buying lunch out every day, for instance, that adds up fast. The same goes for a daily paper that you barely read.
Most people who take this step also find that the act of writing down their spending makes them more thoughtful about it. Don’t let this turn into a guilt trip, but do use it as a prompt to think twice before buying something on a whim.
Start researching
Whatever your particular financial struggles, it’s a safe bet that other people have faced exactly the same thing—and written about it.
There are several great personal finance blogs, and plenty of books, which can help you get back in control of your finances and start saving or investing your money.
I’d suggest starting with these blogs and searching for advice on any specific problem that you’re facing:
The Simple Dollar
Get Rich Slowly
I Will Teach You To Be Rich
Getting clear about your finances can be liberating. Instead of struggling on, trying to ignore the situation, you’re facing it head-on and taking action to start making the changes that you want.
Have you got a grip on your finances? What tips—or horror stories!—can you share?
Ali Luke blogs about writing and life over at Aliventures and has a free ebook called More For Your Money, about getting your best value from your hard-earned cash.
About Guest Contributor
One thing that feels good like the article mentions is to cut down your debts. If possible, wipe them out completely. My wife and I are debt free and it really feels good to pay yourself first instead of loan companies.
You don’t have to cut your costs forever, only until you get a grip on your finances.
very true DFH although I tend to look at debt in two ways – there’s good and bad debt.
Good debt is when you go into debt to invest (borrow at 1% to make 2%) while bad debt is debt when you go into debt to have luxury and make the luxury cost more.
So there’s a time and place for debt – but it certainly does feel good to pay it off!
You both make great points. I think eliminating debt completely is a fantastic goal, but like Darren says, sometimes you borrow in order to invest. There’s also debt like mortgages – if you can pay yours off early, awesome, but (so long as you’ve not borrowed beyond your means) it’s a safe sort of debt.
Very useful info Ali.
I’m in the process of giving away and selling everything I own … books, paintings, furniture … everything.
In 3 weeks I move from rural Ireland back to Dublin and I’m planning to house/pet sit through most of 2011. It’s not for everyone [and I’m 51 so there’s no age limit on mad adventures] and it’ll be just me … a suitcase … a corkscrew and my dog Coco.
I plan to pay off all my debts in 2011 and save towards my move to live in Bali at the end of that year. I want to save enough to be able to rent a villa and pay my living expenses for a year as I run my new Life Dreaming business on and offline.
Not paying rent and utilities for the best part of a year will help me move towards that dream.
And I’m only taking me and Coco dog to Bali so I will resist the temptation to buy too many things in 2011.
All good.
Ali, I’ve found that while keeping a day to day spending log is overkill for me, I can use my credit (or debit) cards to log certain things. Take a card you don’t use and use it for one month for any kind of repetitive transaction. Voila – a tracking system, just by logging into the card’s on-line account.
I do this with fast food and coffee. I use one credit card for all of those purchases. Religiously, and with no other transactions on it. By having done this over the past 18 months, I’ve lowered my rolling 3-month total spending by about 30%.
Great tip, Nick – thanks! I found that a day to day log was too much for me to want or need to keep up long term, but it was incredibly illuminating to see where my money was going in an average month. (I banned myself from ebay for a while after that…!)
for small every day spending, i just keep a certain amount in my wallet. this way i won’t spend more without being aware of it. and at the end of the day, if something is left i can put what is left is a small box. like credit for the next week.
Fab tip – cheers! I’ve done the same at times, and heard from others using similar methods – like an envelope system with different amounts for different areas of spending.
in Russia impossible not to get debts-)) excuse me wrong english
Interesting article, though I think the key assumption of this post is that we have not much influence over our income earnings. Therefore the focus on the expenses side of things. I feel that another angle we should consider pursuing is to find ways to grow our income stream, first by creating additional streams of income, and than trying to move from the employee/self-employed quadrants to the business quadrant (aka cashflow quadrant). With growing level of earnings, there will be less concern for reducing expenses, and living without many pleasures of live that money can buy.
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