5 Steps for Turning Your Finances Around

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Earlier this month, one of my friends that I haven’t heard from in a long time texted me out of the blue. She asked me for help in getting her finances more organized and writing out a budget. I was excited that she reached out, and looked forward to meeting with her. It’s the type of conversation that I enjoy having, but doesn’t happen very often.

Money conversations should happen much more often between friends, but with money still being such a taboo subject in society, we often struggle in silence. It’s a very fine line, offering help where I think it could be needed, and overstepping my bounds where it’s not appreciated. I’ve learned to hold back and let other people bring it up first, then only talking about my personal experiences. When the advice is given with the heart of a teacher, out of love, in small doses, people tend to be receptive to it.

My hope is that this post can help someone who’s struggling figuring out where to start on their journey. Back when I was first starting out, I remember being overwhelmed on where to begin. I had all of these goals, but which should I pursue first? What should I do if I didn’t have enough money to put towards all of them at the same time? By setting up a firm financial foundation we were able to pay off over $50,000 of debt in a little over 4 years. You can do it too, and it all starts with reaching stability and then building off of that.

Here are the steps I shared with my friend, in the hopes of helping to get her finances more organized and stable.

1. Print out bank statements from the last 3 months, highlight the expenses.

The first step I gave her needed to be completed before we met. I had her print out her bank statements from the last 3 months and then go through them line by line, highlighting the expenses by category. For example, any housing expenses were highlighted in yellow, food expenses in green, transportation expenses in pink, and so on. We tallied up the total spending for each category and divided by three to find her monthly average. The advantage to this is two-fold. First, it brings awareness to how much she was spending in each category, and it also establishes an average for which to make a written budget for next month.

2. Write out a list of all your accounts and all your debts.

You can’t achieve your goals if you don’t know where you’re starting out at. Take some time to determine where you’re at financially, as painful as it may be. This is just your starting point, and your finances will improve from there! Figure out all your debts, listing them out with the total balance, minimum payment, and interest rate. This will be helpful when you start attacking these debts one by one. Also, sometimes it helps to visualize your finances and draw out a money map of your accounts.

Before you start fully attacking your debt you can explore options for your student loans such as refinancing, and options for your credit card debt such as transferring the balance to a 0% interest card. When utilizing these options it all depends on your specific circumstances, so be sure to do your own research to determine the best course of action for your unique situation.

3. Make a written budget, determine the right budgeting system for you.

There are many different budgeting systems out there including Mint, Personal Capital, YNAB, Tiller, Excel spreadsheet, or even on paper. There’s no one right answer, figure out which method works for you by giving it a try and seeing if it works. The first month your budget won’t go perfectly, in fact it can take 3-6 months of tweaking to finally get a budget that works well for your situation. We use Mint for our budgeting because it gives us insight into all our accounts in one convenient place, and the transactions are pulled in automatically to limit the amount of time it takes to budget each month. Some people prefer a more manual approach so that they’re staring at their spending head on when they enter it into the system.

4. Go through your budget line by line, challenge everything.

By going through your budget line by line and challenging everything you’ll be able to clearly identify areas to cut back on. Don’t try to do it all at once, start with one category at a time and trim a little bit each month. If you try to cut back your entire budget all at once you increase the likelihood of feeling strained and giving up on your plan. Try to cut out recurring expenses that you find yourself not using, cutting cable, cooking more meals at home, and negotiating your bills.

5. Set your bills to auto-pay and get them more organized.

We use a credit card to pay all our bills, and set them all to auto-pay. If you’re struggling with credit card debt or overspending, this setup can also be done with a debit card. Another way to become more organized is to call all your bill providers and request the same due date for your bills. This takes an initial time investment up front, but going forward you’ll only have one day to remember. Make sure all your paychecks are set to direct deposit as well, there’s no reason to receive paper checks.

Final Thoughts

To recap, by going through these 5 simple steps you made a lot of changes to get your finances on a stable level. You’ve determined your average monthly spending, made a written budget, cut back on your expenses, written out your account and debts, and gotten your bills organized. While this system takes some time to set up, going forward it will roll along on its own and cut down your stress level each month. Going forward, you can decide whether it would make sense to take Dave Ramsey’s Financial Peace class to continue on your financial journey.

Now that your finances are organized you can begin to start focusing on specific goals, such as cutting back further on your expenses, paying off your debts, building up an emergency fund, investing, and growing your income through a side hustle.

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