Getting your finances in order is similar to getting into physical shape and if you've ever embarked on the journey of getting into shape, you are probably all too familiar with how it works.
You have to put in the work, be consistent about it and then keep up with maintaining your new level of physical fitness otherwise it doesn't last long. However, once you can get through the difficult hurdles (being disciplined, adjusting to eating well and exercising often) and you start seeing the results and loving the way you look, staying fit becomes something you want to keep doing.
The same thing applies to your finances. Getting your finances into shape can be stressful and discouraging at the beginning once you start kicking up dust but if you are able to stay the course and follow through, as you see your debt balances go down and your savings balances go up, you'll be excited and motivated and want to keep going.
In order to succeed though, you need to have a solid plan laid out and these 6 steps will guide you on how you can start getting your finances into shape starting right now!
6 Steps To Get Your Finances Into Shape Now
Step 1: Identify your financial goals
Statistics show that you are more likely to succeed when it comes to actually accomplish a goal if your goals are specific, measurable, attainable, relevant and time-specific a.k.a SMART goals. This means determining WHY you want to accomplish a goal, WHAT specifically you are trying to accomplish, WHEN you want to accomplish it by and HOW you are going to accomplish it.
For instance, if you are trying to pay off credit card debt then you need to ask yourself the following questions: What is motivating you to do it? How much do you intend to pay off? By when? And how do you intend to succeed with making the payment over the course of time you've chosen? This is how you get specific with your financial goals.
Step 2: Understand the big picture
Understanding where you currently stand with your finances is basically you laying the path for where you are now and where you are trying to get to. It might involve kicking up a bunch of dust that will make you uncomfortable and perhaps even upset but it's something that must happen in order for you to move forward.
Determining you current debt, expenses and income will help you understand what specific areas of your finances need the most attention and help you prioritize accordingly.
Step 3: Track your spending
This means tracking a look at your daily transactions and expenses. Start by doing this exercise using a spending journal for 7 days and then extend it to 30 days to get a holistic view of exactly where your money is going. Not only is this exercise eye-opening, it also makes your finances top of mind - you'll be thinking about how you spend your money and will be more aware of how much is leaving your bank account.
Step 4: Make adjustments, create a budget
Once you have an idea of where your money is going, you can now create a budget and make adjustments to your spending to ensure you are keeping your expenses below your income and leaving enough room to do things like pay down your debt and save for your goals.
Keep in mind that budgeting takes practice and so don't assume you'll be perfect at budgeting on your first try. If you slip up, keep trying. It's also a good idea to plan your budget for each month a couple of days before the month starts so you can lay things out properly in terms of what you expect to be paying for each particular month.
Step 5: Save and invest
Next, you want to start putting away some money starting with an emergency fund to buffer your finances in the event of any unplanned life circumstances ( your car breaks down, you lose your job etc). Set a goal to get to $1,000 if you don't already have a fund in place and then plan to grow your fund to 3 to 6 months of your basic living expenses. This way if an emergency happens, you have this money to use as opposed to having to borrow money or get into debt.
It's also very important to save for your mid and long terms goals including your retirement. This means contributing to your employer-sponsored retirement programs or setting up your own IRA. Challenge yourself to max out your contributions by making 1% increments every month of every quarter until you are able to reach the allowed contribution limits each year.
Step 6: Become accountable
Now that you know exactly what you should be doing to get your finances into shape, the next thing you should consider is getting an accountability partner or partners; These are people that you share your goals with who are on the same journey as you or have accomplished something you are trying to achieve. Their job is to keep you motivated and on track (and vice versa) when you don't feel like it or you aren't having a great day, week or month (because these things happen!)
Putting your goals out there make you more likely to achieve them because other people know about them!
Getting your finances in shape? What have you done or what are you planning to do?