Five steps to getting your personal finances on track
How do you feel about your finances? Comfortable that you are managing them well? Or does the mention of the word send you into a panic?
As much as facing up to your financial situation may be uncomfortable, it’s essential if you want to be in control of your money, and make sure you have enough to pay for the things you want and need.
Because in order to ensure you’re in control of you money – and not the other way around – you need to know your financial position. You can then make decisions and adopt habits that mean you have healthy finances. And aren’t unknowingly running up expensive debts that could easily have been avoided.
To help you get your finances on the right track, and adopt health habits for the future, Joy Elias from Finance Workout has shared her five steps to healthy finances with us.
1) Know where you stand
The first step is to get a picture of your starting point. There is a famous sentence that states: “If you don’t know where you are or where you’ve come from, how can you know where you are going?” Well, I believe this applies to all areas of our lives.
Looking at this with a finance lens, what it means is the importance of knowing how much you spend monthly, and on what. To get a picture of this you can download your bank statement or link your bank account to an app.
2) Set your goals
This is all about planning. The question here is simple: where would you like to be in x amount of time? You then work backwards from that point to set goals to work towards. I love this part because it makes things a lot more tangible.
Lets take a look at the example of Lucy who lives with her parents. She can’t wait to move out to rent an apartment, however she cannot do so immediately as she needs to pay for a deposit.
So Lucy needs to work out how much would she need to save monthly and for how long. If it is $1,000 and the maximum she can save is $50 per month, then it would take her 20 months.
3) Review your expenses
Once you’ve been able to analyse your spending, whether it’s by poring over your bank statement or via an online app, you will have a clear idea of where your money is going. You can then divide it into two buckets:
- Fixed costs – these are things you can’t change in the short term, such as rent, transport and bills.
- Variable costs – these are things like drinks and dinner with friends, etc.
Once you’ve got your list of expenses, see what you can cut down to give you more money to save or spend in other areas.
Variable costs are easier to reduce first. For example, you might find you are still subscribed to something you no longer need. Or rather than meeting friends for coffee and cake in a cafe you take it in turns to visit each other’s houses.
4) Increase your revenue streams
There are two ways you can get more money: one is to decrease your expenses, and the other is to increase your income.
So once you’ve been through your expenses and reduced what you can, consider ways you can bring in more money. Can you ask your employer for a pay rise or extra hours? Can you take on a second, part time job? (While it’s not sustainable long term to work every waking hour, it can help you reach a short term financial goal.)
Or are there ways you can make money online? Maybe by selling products you own, buy or make? Or, if you have valuable skills, by listing on a freelance site?
5) Track your finances
Now you have your goal, and a complete picture of your finances – where you are now, what expenses you have (and can reduce) and your income opportunities.
It’s time to put it all together to work towards reaching your goal. You need to make decisions that will bring you closer to it, and continually evaluate your progress.
Work out where you need to be finally one, two and three months into your journey towards your goal and check you’re on track. If not, then you can either revise your goal, or see if you can make further changes to your cinema or expenses.
Having a clear goal in sight, and seeing your progress towards can be very satisfying, and makes it easier to make lifestyle changes that won’t just help you now, but can ensure that you practice good financial habits in future too.
Watch Joy explaining how to track your finances
If you’d like to get a better understanding of how you can track your monthly finances, Joy explains how to use her expense tracker here 9find out how you can download your copy of the tracker below):
Love more help getting your finances on track (and keeping them there)? You can download Joy’s expense tracker (free to the first 100 sign ups) here.
Photo by DISRUPTIVO