Do you feel overwhelmed when it comes to your money?
Maybe you have some debt to pay off or you’re worried about paying bills this month.
Maybe you want to have a better understanding on how you can improve your finances.
Sometimes thinking about money can create so much stress that you don’t want face the facts of your financial situation.
Then you decide to do nothing at all.
If you’re feeling this way…
Here are 5 tips that cover some of the basic, simple steps you can take today to feel less stressed about your money:
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1. Take an Inventory of What You Have and What You Owe
I know the article is titled “simple” steps, but simple doesn’t always mean easy.
Before I got my finances on track, I really didn’t want to know my income versus the amount of debt I had.
This was mostly because I knew I had a heck of a lot less money than what I owed (see my student loan debt story here).
It may seem overwhelming to think about sitting down and writing out your various accounts and debts, but I promise you knowing is much better than not knowing!
Do this:
a) Take out a spreadsheet, word doc, or just a piece of paper.
b) Open up your bank accounts – checking, savings, any retirement or investment accounts you might have – and write down the name of the account and the value (for example: Wells Fargo Checking Account: $750).
c) Open up your credit card accounts or look at your paper bills, and in a new section, write out the name of each credit card and the outstanding balance of each.
Also write down any other debts you might have – Mortgages, student loans, IOU’s, etc.
d) Take section one (what you have) and subtract section two (what you owe).
The resulting number is generally know as your “net worth.”
Ok, now breathe. You’ve finished the toughest part!
You might feel overwhelmed, but it’s going to be ok.
The first step to getting your finances on track is to obtain a complete picture of your overall money status, and you’ve just done that!
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Now…
2. Create a Bare Bones Budget
For simplicity’s sake, I just want you to know what you’re taking in (any income you have) each month, and what you don’t have a choice to spend money on each month (meaning rent, utilities, bills, the minimum payment account on any credit cards or loans you have to make without defaulting).
You also will need to write down what you spend (or what you think you need to spend) per month on other essentials like groceries, gas (if you drive to work), etc.
Do this:
a) Take out a spreadsheet, word doc, or piece of paper.
b) In one section, write all of your income sources and the amount of money coming from each income source monthly and add up the total.
c) In the next section, write out all of your “must-pay” expenses and add up the total.
d) In the third section take the total dollar amount from section 1 and subtract the total dollar amount you reached in section 2, and write that number down.
This number is what’s known as your “discretionary income,” meaning the money you have left to save, spend or invest after you make all of your essential payments and purchases.
At this point you should have an idea of the money you’re truly coming home with each month. This is the cash that you are able to then spend on other things (like entertainment purchases, paying off extra debt, etc.).
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Next…
3. Track Your Purchases From the Past Month (Or Several Months)
Now that you know what your net worth is, and the amount of discretionary income you have, it’s time to look at where you’ve chosen to spend the money you’ve made over the past month(s).
Taking this step was one of the most eye-opening experiences for me, because I had no idea how much I was spending on certain things!
Do this:
a) Look at your checking account, credit card statements, any receipts you might have (if you paid for something in cash), from at least the past month (I recommend looking at a few months).
Examine the types of things you spend money on.
Make note of any specific categories that your purchases fall under (e.g. “Clothing,” “Going Out to Eat,” “Entertainment”).
b) Get out a spreadsheet, word doc, or piece of paper and write down the categories you’ve come up with.
If there are purchases you noticed didn’t fall under any specific category just make a category labeled “Other.”
c) Go through, line by line, your checking account or credit card statement purchases for the month and put a description of the charge (“T-shirt from Target”) and the cost ($20) under the corresponding category name (“Clothing”).
d) Once you’ve written down each purchase for the month in its corresponding category, add up the purchase amounts in each one to get the monthly total you’ve spent in that category.
e) Repeat this process for each of the past 3-4 months.
The reason to analyze more than just one month is that you will be able to better see any spending patterns you might have.
Also, there are months where you might make an unusual purchase that doesn’t accurately reflect how you typically spend money.
f) If you’ve completed the process for several months’ worth of purchases, calculate the average amount spent in each category.
For example, if you spend $250 going out to eat in January, $350 in February, and $300 in March, you’ll want to add up those amounts and divide by three (number of months) to get your average, in this case $300.
Look at your totals, are you surprised at how much you’ve been spending in any given category?
When I completed this process years ago, I realized there were some months where I was spending more than $700 going out to eat!
I couldn’t believe it.
I had no clue that I was spending so much, and how easily most of that money could’ve been put toward something more important to me.
Which leads to the next tip…
4. Look at Where You Might Cut or Reduce Expenses
I give this tip with some hesitation, because I don’t want you to cut out everything that makes you happy in order to save money or pay off debt.
When I first started budgeting in order to pay off my student loans, I cut my expenses way too much.
This led to me stressing out about purchasing something as small as a latte or snack – don’t cut so much that you don’t spend money on anything you enjoy!
Do this:
a) Think about the things you’re spending money on and evaluate whether you truly enjoy these things or if you’re spending just to spend.
If there are purchases you’ve made that you could easily, and without hesitation, cut out of your monthly budget, make a plan to do that!
Besides cutting down on going out to eat which ended up being super easy, another good example for me was buying clothing.
I have always had an excessive amount of clothing, and while I do love certain pieces, a lot of the spending I used to do was buying clothes that I didn’t necessarily love, but thought were a “good deal.”
This expense was so easy for me to cut out with no regret and it freed up that money to spend on things that were more important to me!
b) Re-evaluate the subscriptions you pay for.
I borrowed this tip from Ramit Sethi’s book I Will Teach You to Be Rich (which I highly recommend reading or listening to!).
If you have a number of subscriptions that are automatically paid for each month (think cable, Netflix, Wine of the Month or other similar subscription boxes), consider whether you’re actually using them.
Sometimes when we habitually pay for things each month, we don’t even think twice about whether that expenses is necessary or even desired.
Maybe you only pay for cable to watch a specific tv show, is there another way you could watch without having to pay for the whole subscription each month?
There are so many ways to cut down on expenses, and reducing the amount of spending you do each month can allow you to use that money to save for bigger financial goals (like a down payment for a house) or to pay off existing debts!
Just make sure that you’re not whittling your “fun budget” down to nothing, because life is short and the point of making money is not just to survive, but to enjoy yourself in the process.
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Finally…
5. Brainstorm Ideas on How to Make More Money Each Month
One of the most liberating things I’ve learned through reading about money and personal development is that money and opportunities are literally endless if you’re willing to do the work.
Obviously, we all have varying levels of privilege, education, responsibilities (kids and other dependents), and time.
But if you have enough time to scroll through social media for an hour or binge-watch a Netflix series – which, let’s be honest, most of us do – then you have the time to start a side hustle to make more money!
Do this:
a) Pull out your computer and type in “side hustle ideas” on google, look at the “gig” section on Craigslist, or browse the newspaper’s “help wanted” section. A simple google search will turn up literally thousands of ways to make more money each month.
You could walk dogs, babysit, teach a skill, tutor, take online surveys, mow lawns – like I said the possibilities are endless.
b) Apply to any opportunities that look fun or lucrative.
To me, the best part of earning additional income is that you don’t have to worry so much about cutting expenses or trying to “work the numbers” to create more room in your budget.
Also, it is comforting to know that if you’re running low on cash or you have an unexpected expense, you have the ability to go out and pick up a gig to supplement your income.
Bonus Tip: Read or listen to personal finance books, blogs, or podcasts
I don’t think I would have ever established a plan to get out of debt and achieve financial independence had it not been for the many finance experts I followed, read about, or listened to.
There are so many options out there whether it’s blogs, books, audiobooks, podcasts, or even seeking out advice from a friend who handles his or her money well.
You can visit my Resources page for the different books, bloggers, and podcasts I personally follow and recommend, but you really can’t go wrong if you’re taking the initiative to seek out information!
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Final Thoughts
Thinking about your money can be overwhelming and stressful, especially if you’re not where you’d hope you’d be at this point in your life.
The good news is that you have the power to change your financial situation by following the tips from this article and learning more about personal finance.
I hope these tips will serve as a starting point for your journey to financial freedom!