The age-old question…to spend or save? It’s so hard to save and so easy to spend! But what do you do when you have over-spent yourself into debt? What do you do if you aren’t finance-minded and you aren’t good with numbers? Is there a way to manage your money so that you can be responsible and prepared even though numbers just aren’t your thing? I think the answer is yes! (NOTE: This post may contain affiliate links)
Before we get started, be sure you know that I am not a financial counselor! I am a mom and a wife with twenty+ years experience managing my money. I found something that works for me so I’m sharing it with you. So take a read and see if it sounds like something you’re interested in trying.
Where to start?
So, your finances aren’t looking all that pretty and you just want the madness to stop but you don’t know where to begin. First, you have to take inventory. This isn’t pretty and it hurts to put it all down on a piece of paper in front of you. But you have to do it. It’s ugly but it’s necessary. Make a list of all of your necessary expenses. By “necessary” at this point I mean that these are the bills that are due every month. These are all the vendors to whom you owe money:
- Mortgage or rent
- Electric, water, cable, phone, etc
- Credit card(s)
- Student loan
- Car payment
- Insurance, etc
What you owe other people. Get all of this written down on a list…an ugly list- the names and the monthly amounts due.
Now, for the really hard part…you need to look at your bank statement and any credit cards that you actively use over the course of a month and write down your expenses along with the general category those expenses would fall under. So, things like:
- Eating out
- Entertainment, etc.
If you pay a vendor from your first list with one of these accounts, don’t list that expense because you already did earlier. This list is for all the “extra” stuff you pay. The things you buy, the things you enjoy, the things that you eat.
In front of you should be all the things that bleed you dry each month. It’s not pretty, but it’s reality. Now, how do you get control over this?
Assess the damage
Let’s leave the first list alone for now and look at the second list. There’s lots to talk about here, isn’t there? All that eating out, coffee in the morning, that new pretty dress? None of it’s necessary. Going out for lunch every work day? Nope…not necessary. Beautifully manicured nails? Unless you’re a hand model, nope. It’s not necessary. This list is a great opportunity to change. But you have to really want to do this or it just won’t work. You’ve got to cross out every unnecessary item from this list and only buy things that are planned.
Now, let’s head back to that first list. This might sting a bit…but bear with me. Cable? You know it’s not necessary, right? Sorry. Your cell phone plan? You don’t need a huge data plan. You really don’t. Your electric bill…you don’t need to keep your house at 70F…you can bump it up to 73F. Really take a look at those mandatory expenses because there’s places to trim.
Like I said, it’s going to be tough but it can be done. We’ve been without cable for close to five years now. We use an Amazon Fire (if you buy it using this link, I’ll get a little payment but don’t worry…your price doesn’t go up. Help me out!) along with a Hulu and a Netflix subscription. Even better, we purchased the Amazon Fire using American Express points we had collected.
We use our American Express card for all budgeted purchases (groceries, gas, etc.) so that we can get the points for those purchases. This card is paid in full every single month so there’s no debt carry-over. (It’s a method that takes a huge amount of discipline and even still, we fall short at times so beware if you are considering using a credit card to carry all of your monthly expenses.)
Search through all of your expenses to find ways to eliminate payments you have to make.You’ll need to make some tough decisions, but once you take the plunge on swapping the expensive comforts in your life with more economical ones you’ll adjust quickly. You’ll probably even feel better about how you are spending your time, too!
Take the next step toward controlling your money
Now that you’ve faced the ugly that’s been lurking in your checkbook, let’s get down to business on organizing your finances. You need a way to watch your money but you aren’t into budgeting, you aren’t a numbers person, etc. That’s fine. You still need to meet your obligations and you also need to start saving as well as paying down debt. This is the biggest area where people fail in their money management. It’s the failure to see that even though you have money right now, that it’s not necessarily “spendable”. You’ve got obligations down the road that you need to consider before you spend that extra money now.
So how do you do it? You’ve got to find something that works for you, first and foremost. The biggest issue I see with folks I’ve helped over the years is that I can throw solutions their way all day long. But if the method doesn’t click with them, they will not succeed in managing their money. So you have to find something that works for you. It can be an app, a help guru or old fashioned pencil and paper. You can even use the tried and true envelope system!
What we’ve done (I’ll preface this part by saying I’m a huge numbers girl!) is utilize Microsoft Excel to show us how our money moves through a dynamic budget. That means a budget that’s constantly responding to current changes in our spending. So we can see a year from now what our money is doing, what we need, what we can safely pay off, etc. We can see how an expense now affects our goals in the future. Whatever method you choose, it has to be something you’re comfortable using and one that you’ll stick with.
Save or pay off debt?
I think most financial counselors will say the same thing. Manage your debt until you have successfully saved $1,000 as an emergency fund. Then go after debt, smallest first and snowball into bigger debt. What that means is once you’ve paid off the first debt, use the money you used to pay each month to the debt that’s no longer there and add it to the next debt you’re starting to work on. The snowball effect is that you’ll have more money to throw at each bigger debt as you pay off the smaller ones. It’s tough work, it requires a ton of patience and discipline but it’s completely possible to accomplish.
Sign-up To Access Free Budget Tool!
Creating an elaborate budget can be kind of complicated for someone who’s not all that into Excel and formulas, so I thought I would create a little tool to help you manage your month- just one paycheck at a time. In essence, you’re living paycheck to paycheck but this little tool also shows you when you can and when you shouldn’t move money to savings. The key for this to work for you is to be honest and complete with your answers. You can subscribe here and once you’ve confirmed your subscription, you can work through this mini-lesson called ‘The Little Budget Tool That Could’ on budgeting using the tool (you’ll need to have MS Excel in order to use it since it is a spreadsheet).
Basically this will take you through a quick set-up of your month. Then it’ll give you a place to put what actually happens in the course of a month next to what you planned, so you can see how you did compared to your budgeted amounts by category. At the end of your pay period (if you entered your information correctly) it will tell you if you can move some money into savings and if so, how much you can safely move.
The tool will also tell you how much you need to hold on to so you can be prepared for the rest of the month. So if you have some money left over in one pay check but you have a lot of expenses due in the next pay check, the tool will not tell you to move money into savings since you’ll need it to help you pay the next pay period’s expenses.
It’s a simplistic approach to living within your paycheck and your month while still allowing you to start saving. Once you have your goal amount in savings, you can then start working on paying down your debt using the snowball effect I mentioned above.
If you’re ready to get serious about your finances, give this mini-lesson a try and use the budget tool. You may find that you’re able to make headway toward financial stability.
Good luck to you on your financial journey!