Many of us have been there. You?re up to your eyeballs in debt or you don?t know how you?re going to make ends meet come month end. Regardless of what the particular situation is, you?re wanting to get back on track financially but just don?t know where to start.
The first key, generally speaking, is not to panic ? while financial trouble can be stressful, it won?t stay that way forever if you?re committed to changing. If you put together a smart game plan and focus on making good decisions going forward, you will likely be able to get back on track and focus on positive growth.
One of the big keys to fixing your financial life is looking at it from a rational perspective, instead of an emotional one. Financial trouble can be a hard thing to deal with, but it?s most certainly not impossible to overcome. You have a certain amount of money that you bring in as income, and a certain amount you have to spend in expenses. Once you find a way to make the income outweigh the expenses, you can start to put your financial life back on track.
Get Back on Track By Assessing the Situation
In order to successfully get things back on track, you need to first know exactly what the problem is that you are dealing with. 🙂 ?Take some time to organize all of your financial records from the last few months, and see how they look. You can even ask yourself questions, such as:
- What is the average amount of money you are spending on a monthly basis?
- How much do you bring in each month?
- What things can you cut without missing it?
One important element of this analysis is figuring out how much debt you currently have. By knowing where you stand in relation to debt, you can start to formulate a debt reduction plan for paying it off over time if that?s the issue you?re needing to address. By going through this exercise you can discern where you have the money that can be thrown at things like any credit card debt or putting towards savings. The key to remember is that even though it might be small amounts now, you want to develop that discipline of moving forward.
Building a Budget
Once you have taken an overview of the situation, the next step to getting back on track financially is establishing a budget. Your income is hopefully somewhat consistent from month to month depending on your salary, so you don?t need to think too much about that side of the equation.
When working on your budget, you want to revisit some places where you might be spending money unnecessarily and try to reduce those areas. There are many examples of this from cutting subscriptions or memberships you?re not using to reducing cell phone bills to cutting your grocery spending. The amounts might seem small on their own, but added up they can begin to build something substantial.
Establish an Emergency Fund
One of the most stressful things about living with financial trouble is that you feel like your back is always up against the wall because you have no reserve or savings to fall back on. When building your budget, try to account for a portion of your monthly spending to go into an emergency fund. You don?t necessarily need to have a particular purpose for this money, other than to sit in your account and act as a safety net in the event of something happening.
What I found that worked best when first establishing my first emergency fund was to give myself a goal. That first goal was $250 put away. Once I hit that goal, I didn?t stop, but doubled it to $500 and went on from there. The point is to give yourself something to shoot for that will motivate you to go reach it. It might feel that the money is just sitting there doing nothing. I get that, I felt that way as well at first. That?s the wrong view to take though. Emergencies happen and the last thing you want is to have something pop up that will throw you off track. Having that safety net will help protect against that.
What are some suggestions you?d give to someone trying to get back on track financially? What is the first thing you?d cut? What kept you motivated when you faced financial trouble?
Photo courtesy of: Les Chatfield
*This post was featured on Penny Thots and Loans & Lifestyle
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Just lately is when I realized that emergency fund is really important. This happened when I got into an accident in another country. I was lucky that I had EF because my money on hand was not enough to pay for the charges. 🙂 My source of EF has been my 25% salary saving, been doing this for three years.
Completely agree with these priorities. In finance, as in life in general, the first thing to do is to analyse the situation and write everything down in detail. Only then can you properly assess and tackle the problem at hand.
I think assessing the situation and admitting you fell off track is the first step to getting back on course. If you don’t admit you have problems, then you can’t fix the situation. You also have to remember that change is not overnight and remind yourself to be patient. It sucks to get off course financially, but it’s even worse if your head isn’t in the game to fix it.
Tracking our spending was the most important thing we did in the beginning. Once we started doing that and creating a monthly budget, everything else fell into place.
Tracking my spending was key for me. And I don’t mean, keeping track in my head, I mean writing every single expense down and keeping track of it. I was able to realize where my holes where and started to plug them. Once you know where your money is going, you can create a pretty reasonable budget.
Great tips and thanks!
That one that resonates with me above all the others is the establishment of an emergency fund. I recently had an issue where an emergency fund would have come in handy. So that is now my financial mission for the next little while! Thanks for the reminder 🙂
Take care and all the best.
Lyle
Don’t be like everyone else. That would be my suggestion. You don’t need to keep up with your neighbor.
First write down you goals so you know why you are getting back on track. Tracking your spending is key. No estimates but real spending. Find out exactly what you need to live, (rent, food, transportation) then build your non-essential budget around that.
Also, don’t go the journey alone, find some help. Community or friends are great motivators so surround yourself with people who are trying to pursue the same goals you have. The first couple of months are the hardest, until you develop the right habits. Once you do you will be much happier achieving the goals you wrote down!