Get Your Finances On Track

I have always been a person that loves numbers and money. I started keeping a checkbook register as a kid to keep track of what I made and what I spent. I didn’t have a checking account and my bank was a pink teddy bear that sat beside my dresser. I loved to save money and I loved to budget my money. My sisters used to call me “The Bank of Jody”. That said, I carried on these practices as I got older and they served me well, until unfortunate events turned my life upside down.

As a result of these events, my finances were wrecked. It made me sick at my stomach to think about it and for months I couldn’t bring myself to assess the total damage. Finally, I got the courage sort through the aftermath, it was hard and discouraging. But knowing the damage meant I could make a plan to clean up the mess and get back on track with my finances.

Maybe you didn’t have a life event that wrecked your finances (if you did, I am sorry). Maybe you never learned how to manage your finances. Maybe life is just moving at such a fast pace that you didn’t realize what was happening until the collection notices start coming. Or you are tired of working so hard and still living paycheck to paycheck. Whatever it is that has caused your finances to get out of hand, I want to share with you how I got mine back under control. Hopefully what I am doing helps you take control of your financial situation and make your money work for you.

Know Where Your Money Is Going

The first step to taking control is knowing how much you make each month. After tax and everything is taken out of you paycheck, how much do you put into your back account?

Next you need to know where your money is going each month. Honestly, this is the hardest part of getting you financed under control. To do this, set some time aside to write down all of the bills that you pay each month; write out what it is for and the amount.

For example: Water Bill = $100

I use an Excel sheet to keep track of my monthly expenses so I can quickly sum it up at the bottom of the column. Below I have listed common bills most people have.

Mortgage/Rent
Electric/Gas
Water
Sewage
Phone
Internet
TV
TV/Music Subscriptions
On-going charitable donations (what you give to your church or favorite charities monthly)
Cleaning/Lawn services
Health insurance (if not provided by employer)

Also note how much you generally spend on groceries and gas each month. I know these amount will vary month to month so take an average. You can either look back on previous months to see what you’ve been spending on groceries or you can just start now keeping track of what you spend and come up with your average over the next few months. Do the same for fuel for your vehicle.

Example: Month 1 = $400 Month 2 = $300 Month 3 = $350
Total for all 3 months = $1050 (divide that by 3 for the # of months to get your average)
Average grocery bill = $350/month

Some of your bills come out every few months, you can handle these bills one of two ways.

Add up what you pay each year and divide that by 12 months to get what you would pay each month. If you save that much in your account each month then by the time that bill needs paid you will have that amount ready and waiting.
You can make note of the months each of these bills comes out and make sure you have that amount extra in your account to be use for that bill.

These bills usually include things like car insurance, car inspection, home insurance, water pollution control, etc.

Lastly, make note of your debt and minimum payments. This would be your student loans, other loans and credit card debt.

Now add up all of the numbers to get the total amount you need a month to pay your bills. This number may surprise you. Most people do not realize how much they spend a month on bills. Or you may be surprised at how small the number is and wonder where all the rest of your money is going!

Now that you know how much money is going to come out of your account each month, it is time to look at where the rest of your money is going. Take note of what else you are spending money on. A lot of us are buying what we want, when we want it. Impulse buys, mindless spending and retail therapy can get our bank accounts into trouble faster than you think! One of the areas I needed to address was eating out. With 3 kids in tow, whether I was running errands or running to and from each child’s activity, we always ended up needing a meal on the run. This happened several days a week! When I tallied up how much I spent of meals out I was shocked. I had to make a better effort to plan meals around our outings or pack snacks to avoid stopping at the nearest drive thru.

When we are aware of this extra spending we are doing we can make a conscious effort to reduce or even eliminate it, saving us much of our hard earned money. Mint is a great, free resource where you can keep track of all your financial activity.

Places where you can cut back or eliminate spending:

Subscriptions
Eating out
Entertainment
Gifts
Retail Shopping: Clothes, shoes, toys, makeup, home decor, unneeded impulse buys
Alcohol

This should be the end of the gut wrenching, sick at your stomach, head-shaking, wondering how did this happen part of the process. Now comes the hope-filled, exciting, make a plan to take back control of my money part of the process!

Make A Plan

Now that you know all of your numbers, start deciding what you are going to cut back on and make not how much money that will save you each month.

If you find that the total amount spent on your bills/debt is more than you make in a month then you should cut out all extra, unnecessary spending. Then look at your bills, where can you cut back? Maybe you don’t need the cleaning or lawn service. Maybe cancel some of your subscription services. You can pull back on the amount you spend on groceries by being more aware of what you buy, looking for sales and using coupons. If you cut back in every area possible and still see that you paycheck can’t cover your bills, it is time to look at the bigger picture. Should you downsize your house? Are you in the position to seek a raise at work? Is it time to find a new job or maybe start a side job? Also take into account your debt.

Would you have enough money from your paycheck if you did not have debt (mortgage not included). If the answer is yes, more than enough then I suggest you buckle down and focus on getting out of debt asap. When I looked at my numbers, the minimum payments for my debt took out a large chunk of my income. If I didn’t have the debt, I would have had a lot more money to save or use for things I enjoyed. For awhile I had to focus my attention on paying down one debt at a time and snowballing payments to conquer this problem.

If you find that you have money left over from your paycheck after paying your bills… Woo Hoo!!! That is exciting! Now you get to decide what to do with it. Here are wise things you should be doing with your money.

Have an emergency fund in the amount of 6 months of your cost of living
Have a long term savings account – for example and IRA
Have a short term savings account – this is for vacations, home repairs/projects, large purchases (like a car), etc.
Pay off your debt! You’ve paid the minimum on all of your debt, now focus on one of your debts and pay as much extra as you can to squash it! Believe me, the interest you are accruing on these debts is stealing your money. It is disgusting how much extra money they take so it is important and wise to get rid of debt as fast as you can.
Invest. If you have your debt paid off, a retirement account, short term savings and still have money why not make it work for you and invest it?

I know I quickly went through the process I took to get on track financially but I hope this helps you wherever you are in your financial path. Just know, depending on how much debt you have, it could take awhile to get your finances back where they should be. Don’t get discouraged. Celebrate the small victories and keep moving forward. Keep track of your progress to see how far you have come. Lastly, don’t look at this as sacrifice. Try to have a little fun. Set goals and celebrate. Save for a long weekend, concert or other event. Saving over time makes the actual event more enjoyable. I wish you the best of luck!