As someone who advocates for personal finance, it is still a struggle to maintain momentum. There have been times when I’ve been blindsided by bills and times when I’ve completely ignored my finances. If this has ever been you, you are not alone. The world revolves around money and it can be overwhelming to constantly think about who you owe, needing more income, whether you’ll make ends meet this month, etc. Although, we may have good intentions, our actions may not support those intentions. You may have to pause and press reset but that’s okay. Reset as many times as you need to but never stop progressing. Your finances will change as seasons in your life change, reset and adjust. To get started, here are a few tips to get your finances on track.
Know Your Numbers
This sounds so simple but people go days without checking their accounts. You have some who religiously swipe their cards without knowing their balance. This is a poor money habit. The starting point to getting your finances on track is to know exactly where you stand. What does knowing your number look like?
- Net monthly income
- Monthly expenses
- Debt Owed (to whom and how much per creditor)
- Net worth
- Checking Account Balance
- Savings Account Balance
- Investment balances (retirement, money market accounts, Acorns, etc.)
These numbers make up your financial snapshot. They let you know where you stand. Based on your current standing, you can create actionable financial goals.
Organize Financial Documents
Organization isn’t about perfection. It’s about efficiency, reducing stress and clutter, saving time and money, and improving your overall quality of life. – Anonymous
When organizing documents, you may be either a hoarder or you get rid of things easily. An efficient system is one where you keep only the documents you need and organize them in a manner that makes sense to you. Some best practices are:
- Keep the most up to date copy of information
- When determining if you should keep or discard, ask yourself :”What’s the worst that can happen if I get rid of this document?”
- If organizing manually, use either a file cabinet or expanding folder and separate by sections (life insurance, statements, tax returns, etc). When digitally organizing, create folders on your desktop (or somewhere incognito) and separate your files.
Pull Credit Report & Score
Your score and report tell lenders about the type of person you are financially before having any contact with you. If you want the numbers to speak for themselves, you have to know what they are and consistently manage them. YLF’s credit series goes through the importance of your report and score and how to obtain each.
Once you find out your score and review your report take some actionable steps toward improvement. Consider these:
- Write down your current credit score and give yourself a deadline to improve your score by
- Print your credit report and highlight anything that is inaccurate
- Circle the creditors who you need to contact in order to get your report cleaned up
- Do the work! Follow up with creditors, start cleaning your credit up, and you’ll begin to see your score increase.
Create A Budget
The nasty “B” word that most people hate. First, you need to create a positive association to the word and practice of budgeting. It is crucial to managing your finances and one is rarely financially successful without it. The type of budget you should use? That’s specific to how detailed and XX you need to be. There are various options so there’s no reason you shouldn’t be able to find one that works for you. HERE, I go through the top 3 used techniques.
Pay Down Debt
I won’t give advice that I wouldn’t take myself or deem useful. I too have debt and I have a payoff plan that I’ve been working on for a few years. Part of being financially free is getting rid of debt to free up more money. Hence the term “financial freedom.” Racking up debt not only hurts your bottom line but it also affects your net worth and your credit score. The two most common method to paying down debt are:
Debt Snowball: List all of your debts from smallest to largest. Pay the minimum on all debts except for the smallest. Take the smallest debt and put any additional income you have towards it. Attack it with all that you have to pay it off first. Once you’re done, use the money you were putting towards that debt and roll (snowball) it over to the next smallest and keep going until you are at $0.
Debt Avalanche: This method works the same as the snowball except your focus is on knocking off the debts with the highest interest rates first and you keep going until all debts have been paid.
Pick a method, stick to it, and get that debt paid off!The only good debt is the one I don't owe. Click To Tweet
Create a Buffer
Your buffer is your new $0 balance; the amount that tells you that you can’t spend another dime. Letting your account literally get to $0 leaves you susceptible to bank fees and the possibility of over drafting your account. If you’re familiar with me, then you know that I love the Zero Based Budget. In essence, I do budget down to $0 and give every dollar a job. My trick is that my buffer is part of my budget. Once you hit this amount, whether it’s $50 or $100, it’s a red flag to stop spending. Newsflash: you have no more money!
Separate Bank Accounts
You might be thinking how many accounts do you actually have to keep up with? If you do nothing else, you have to separate your savings account. I go the extra mile and actually keep multiple accounts. For some, multiple accounts may seem disorganized, but it’s more so organized chaos. If you like to be specific and break down your income, you may want to consider managing your money by accounts or buckets. Here are mine:
Bill pay account:
- This is my direct deposit account (Big Bank Checking Account). All of my online bills are paid through this account.
Short Term Savings Account:
- This is the account that is directly linked to my checking under the same big bank. I only use this to temporarily house my short-term savings. Expenses such as dining out or entertainment for the month will go in here. As this account is with the same bank as my checking it is too easy to get my hands on this money. Hence why it is used for short-term savings.
Long Term Savings Account (with 2 buckets):
- This is my favorite account. My emergency and targeted (travel, home ownership, etc.) are housed. This is a strictly an online account and I have no debit card to access the funds. If I ever needed the money, I would have to transfer the funds and it takes about 2-3 days. It’s very good at deterring me from dipping into the account.
- Automated investing account. The app is linked to my checking account and take spare change along with a set amount weekly (optional) to invest. It’s known as micro investing and an easy way to get into investing your money. During the initial set up, there’s a small questionnaire to determine the type of investor you are. Based on your answers, your spare change is invested into a variety of stocks and bonds.
Now these are just my bank accounts. I also have 2 retirement accounts but that’s another story for another day.
Getting your finances on track is time-consuming but we make it more difficult than it needs to be. As long as you commit to doing it often, the task will be less tedious each time. Let me know in the comments, how are you planning to get your finances on track?