How to Improve Your Finances When You Don’t Know Where to Start
Albert Einstein defines insanity as doing the same thing over and over again but expecting different results. I find this most applicable when I hear people complaining about their finances and their money and the lack thereof. I know a lot of people who always seem to be saying they don’t have enough money, are feeling bogged down by bills, and are dreaming of winning the lottery as a way out. Since I’ve become more financially aware, I also realize just how easy it is to be clueless about where your money is going.
Regardless of what your financial situation is, there are ways you can improve it – whether it is getting out of debt, saving more money, or simply managing your money in a better way. You might feel like you are on a merry-go-round with your money, but don’t be afraid to make changes.
Improving Your Finances: Where to Start
While it would obviously help, I don’t think you need to win the lottery to change your finances. I think in a few weeks, you could be on your way to changing your finances. Here are some ideas to get started:
- Dissect your budget.
Before you make any changes to your current situation, you really need to understand what in fact your current situation is. Figure out what is coming in every month and what is going out. What are you earning? If you earn a salary or steady paycheck, this may not be so tough. But still account for any taxes you get taken out, how much you are withholding for insurance or a retirement plan, and so on. If you are a person with a fluctuating income, such as someone who does freelance work, sales while working on commission, owning your own business, or work on tips, this may be a bit harder. In that case, take the average of the year, and always try to make a lower estimate to be safe.
This also means you’ll have to see where your money is going. Go through the last six months of your credit card statements and checking account to see what you are spending. Add up all the purchases by categories including your specific bills (rent/mortgage, utilities, cable, insurance), any debt repayment (credit card bills, student loans, car payment, etc.) food, entertainment, gifts, transportation costs (gas, public transportation, etc.), miscellaneous items (toiletries, etc.), and any other categories.
Read More: How to Get Control of Your Budget
- Track your spending for the week.
Write down every penny you spend. This is going to help for two reasons. First, you will be able to see where your money is actually going. You might be surprised how much you are actually spending every week. Things add up quickly. Also, you will be able to use this information to make a budget later on. Once the week is up, go through the list. Is there anything on this list you can eliminate?
Read More: Manage Your Budget by Tracking Your Spending
- Understand your debt.
Having debt is overwhelming and can be stressful. Unfortunately, a lot of people deal with this debt by trying to ignore it or simply making minimum payments. Many people don’t even really know how much they actually owe towards debt. Write down all of your debts – every credit card, your student loans, a car loan or whatever else you have. Add up the total balance, what you are paying in interest and how much of your payments are going towards the principal balance.
Read More: 10 Step Plan for Debt Elimination
- Try to lower your monthly payments.
Write down each of your monthly bills – including cable, electric, gym membership, phone bill, and whatever else you pay every month. Next, try to get them to a lower amount. Maybe it’s downgrading to a lesser cable package or a smaller phone package. You can call each of these places to see what they can do.
Read More: 16 Ways to Lower Your Housing Costs
- Ask for lower interest rates.
Call your credit card company, and ask for a lower interest rate. Lowering your interest rate even by a percent or two can make a big difference over time.
Read More: 7 Ways to Payoff Credit Card Debt
- Sell your stuff.
Doing a thorough cleaning is beneficial to your financial health for several reasons. First, the most obvious reason, you can sell items you no longer want anymore. Whether it’s a consignment shop, on eBay, or with a garage or yard sale, selling things you don’t need is a great way to make extra cash to put towards debt repayment or put into your savings account. Put extra money towards debt repayment or in a savings account. Besides extra cash, reducing clutter will allow you to see what you really have and get organized. This can make your life easier and prevent you from double buying items or misplacing things and having to buy it again.
Read More: 10 Surprising Things You Can Turn Into Cash
- Write down the financial mistakes you’ve made or have been making.
It’s hard to face up to your mistakes, but acknowledging them if the first step to not only fixing them but preventing from happening them again. What mistakes have you made with money? Maybe you give into impulse purchases, don’t keep a budget, or spend too much on friends. Did you buy a house or car that you really couldn’t afford? Or maybe you charged too much on credit cards. Reflect on these mistakes and remember them when you are making a future purchase.
- Start changing how you think about money.
What does money mean to you? It sounds like a weird question, but it is never just money. Is spending money a stress reliever for you? Do you equate money with success and happiness? Do you feel like you need to have expensive things to prove yourself to others or even yourself? For many people, their relationship with money is simply much more than dollars and cents. In addition, financial issues can be overwhelming or scary so maybe you just choose not to really know what is going on with your finances. Take some time to think about how you think about money. How can you start creating a healthier relationship with money?
Read More: How to Manage Money in Your Marriage
What are some other first steps people can take to improve their finances? Which of these tips have you done? How did they work out for you?