We all face it. Life gets the best of us, and our budget is blown. You want to get back on track, but achieving your financial goals seems impossible. You’re not sure if you can even manage your debt repayment.
Fortunately, you turn things around. Here’s how to improve your current financial situation and pursue financial freedom.
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How to Get Your Financial Life Back on Track
It can be overwhelming when you want to take charge of your finances, especially if you’re new to managing your money. Don’t believe the myth that you must have lots of cash to become financially stable.
You just need to get started. Here are six steps to get your finances back on track. Just remember, personal finance is personal for a reason. Adjust these suggestions to your situation to ensure success.
1. Get Organized
The first step forward when learning to manage your money is to figure out what is going on with your finances. Life gets busy, and it’s easy to get behind or ignore your finances.
If that’s you, now is the time to assess your situation. You want to collect a few pieces of information.
First, collect your paychecks. If you have side hustles, include what you earn with them. You want to count all sources of income.
Next, log into your bank account to see what you have in your checking account and savings account. You may even want to print off your last bank statement since that will help with the next steps.
If you have any savings goals, determine if you will reach them or not. This will help you decide if you need to look for ways to save money.
Finally, review your outstanding debts. If you have student loans or credit card debt, you want to eventually begin a repayment plan.
2. Start a Simple Budget
Budgeting gets a bad rap, but it’s necessary to help you get back on track. Fortunately, it’s not difficult to create a budget.
In fact, it’s quite simple to create a budget. Start by taking the information from the first step to start. You want to have what you earn and all your monthly expenses, no matter how minimal they seem.
The goal is to have money left over at the end of each month. You can use those remaining funds to work toward your goals.
If this all seems overwhelming, there are numerous budgeting apps that can help you. They can track your spending so you can identify expenses to cut.
At a minimum, the goal is to balance your budget so you’re not adding debt to your life. When you combine that with reduced spending, you will slowly begin to make progress. This gives birth to momentum.
3. Restart Debt Repayment
Debt, especially credit card debt, can make it challenging to reach financial goals. Attacking that debt is essential to getting on the right track.
As you begin to manage your budget, you want to write down all of your debt. List out the interest rate as well since that is helpful to know.
You want to pay off the smallest debt first and make at least the minimum monthly payments on the remaining balances.
Don’t overlook contacting the issuers of all of your credit cards to see if they can reduce the interest rates on your account. Any reduction will make it easier to pay them off in full.
All of this will also help improve your credit score, which will benefit you in the future.
If you don’t have debt, you can skip this step and move on to identifying ways to live within your means.
4. Create Savings Goals and Stick to Them
One of the top reasons many people get off track is they don’t have savings to help them deal with emergencies. As you begin budgeting, it’s essential to find ways to start saving money.
This will help you stop living paycheck-to-paycheck and begin to increase your net worth. The first step is to create an emergency fund.
It’s best to save $500, then $1,000, then work towards saving one month’s worth of living expenses. Use that as a building block to reach three months.
Instead of opting for your local bank, use an online option like CIT Bank. They have competitive rates and the same FDIC protections you find at your local institution.
After you start on your emergency fund, identify other savings goals you want to pursue. These can include saving for a house, a nice vacation, your child’s education, and more.
As you free up resources in your budget, apply the savings towards those goals. Don’t overlook retirement planning either, as that’s equally as important.
5. Reassess Monthly, Then Quarterly
A financial plan is not a set-it-and-forget-it situation, especially in the beginning. You want to revisit your budget monthly to ensure you’re not missing anything significant.
This helps you optimize your finances to verify that your money is working as hard as possible. Once you feel you don’t need to look at your finances monthly, it’s fine to move to quarterly.
This may seem difficult, but most budgeting apps do much of the work for you. Take advantage of this to reduce the time you spend on the activity without negatively impacting your finances.
6. Give Yourself Grace
The most important thing when trying to get back on track financially is to extend yourself grace. Improving your finances takes time, and that’s fine.
You will make mistakes. We all do. Take that into account when you work to become financially stable. Learn from those mistakes, and apply those lessons to your budget.
Furthermore, don’t overlook treating yourself occasionally. Set a simple number and enjoy it.
You may not realize it, but a simple act like that can encourage you to push forward. Not only that, but it will give you a taste of what financial freedom is like.
We’re our own worst critics, so take it easy on yourself when you make a mistake.
Bottom Line
It’s easy to look at your financial picture and believe that becoming financially stable isn’t a possibility. That’s a myth.
You can make ends meet and achieve freedom, but it does take effort. Combine that with a willingness to do what it takes, and you’ll get back on track and start reaching your goals.
What’s one challenge you’re facing while trying to improve your finances?
I’m John Schmoll, a former stockbroker, MBA-grad, published finance writer, and founder of Frugal Rules.
As a veteran of the financial services industry, I’ve worked as a mutual fund administrator, banker, and stockbroker and was Series 7 and 63-licensed, but I left all that behind in 2012 to help people learn how to manage their money.
My goal is to help you gain the knowledge you need to become financially independent with personally-tested financial tools and money-saving solutions.
I have this theory that everyone has to live within an allotted amount each month, some people have a larger amount and a looser budget but they still have to live within that amount unless they want to go into debt.
So a CPA might live on $10,000/month, while a CSR might live on $2000/month. They still have to live within the amount that they earn each month. Anyway I think Personal Capital is great to track your money. I love it.
Great list! One way to increase our income that we overlooked for a long time was to change to a different employer. That seems to be the new protocol for growing a career. Of course you can’t do this every season but if you haven’t thought about it’s a good time to start looking.
Completely agreed Kalie. We’ve had numerous friends do this over the past several years. It doesn’t make sense that a firm would put the investment into someone and let them walk but it can turn out quite well income wise.
Great ideas here! I think if you can focus on finances in the summer, you are ahead of the game. People tend to spend too much during these months, in my experience!
Thanks Natalie. I’ve seen the same exact thing and then they just give up at the end of the summer because the year is over 1/2 over and the cycle just builds on itself.
Some fantastic ideas! I agree that I don’t typically promote no-spend months. However, as I am moving this month, I am really trying to spend less on everyday items because that’s one less thing I have to move! We are definitely eating out of the pantry this month.
Thanks Rachel! We felt the exact same way when we moved last month.
I tracked every dollar I spent for the first time last month and it was really eye-opening. It showed me that I spend way too much money on takeout food. This month, I am definitely doing more grocery shopping and home cooking. I agree that everyone should track their expenses for at least one month to really see where his/her money is going.
Good for you Aliyyah! It really can be eye-opening, especially when you don’t stop to realize it. But, that savings is nice when you make the change.
This is a great list 🙂 I agree that budgets don’t work for everyone – my husband really struggles to keep to a strict budget so does a loose one x
Terrific list! We don’t use a set budget, but track the heck out of our expenses and gauge spending from there.
I appreciate the reminder to start shopping for the holidays now – something I haven’t even considered but the year is flying by and that time will approach quickly!
I know, it’s crazy how fast this year is going! Christmas will be here before we know it.
I love it when I’m able to do a low-stress repair around the home. I’m not going to lie – multiple times I’ve bit off more than I can chew and it’s always stressful to call someone in and get the job done. But over the past few months I’ve replaced a part on our dishwasher and fixed our renter’s toilet. Pretty big wins if you ask me!
Nice work DC! I love when I’m able to fix something without paying someone else to do it. Doesn’t hurt the confidence next time either. 🙂
This is an awesome list John! We actually decided to sell a bunch of things from our basement and garage this summer, mostly because they are cluttering things but secondly because my son surprisingly made a premier soccer team and we hadn’t budgeted for the team fees so we thought a good way to get some cash would be to sell a number of items that now have dust on them from sitting around our house for over four years. Looking forward to the extra money but mostly the extra space. 🙂
Planning is really imporant as budgeting. I plan every meal and expense I do on a weekly basis. Plans are what make this journey with direction.
SO MANY good reminders in this list…writing down the debt graph that will hopefully end in ZERO eventually is just one more visual aid that spurs us on to victory ????
Thanks Dan! Totally agreed, making that debt visual is a great way to encourage/challenge on to killing it for good.
I just dropped to the lowest Dish package – welcome pack. Gives me network and a few other things for $23 per month. We have Netflix and Amazon for movies and better series. We live in the country so could not do over the air antenna. We are not big sports people, so it works for us.
Glad to hear it Jackie. Just keep an eye on them increasing your rate in a year as they like to do that.