At the beginning of this year, my husband and I made the resolution to reduce our credit card balances, clean up our credit report and begin saving more money for college and retirement. We are now past the halfway point and have not accomplished one thing except to maintain the status quo. It just proves the point that all of us can allow ourselves to get into a financial mess even if we know better (I work for a bankruptcy law firm). The key to climbing out of a financial pit and managing your money is to take it one step at a time instead of overwhelming yourself before you even begin. Based on what I have learned through my employment in working with bankruptcy for over a decade, I developed a nine step program for my husband and me to clean up our debt and manage our finances.
Step 1 – Go shopping. Okay this sounds like a strange way to begin to take control of your finances; however, you will need some supplies to prepare to rein in your runaway finances. One reason clients have given for not maintaining control of their finances is that it was just too hard to keep up with everything. Another reason was they never could find time to sit down and pay bills. One reason my husband and I let our finances get so out of control is we did not have any system for paying bills – – we threw them on the counter, table, nightstand, wherever they landed they stayed until we got an angry call about an overdue bill. Designating a place to keep everything related to finances is essential to gaining control.
Therefore, the first step is to designate a certain area of your home as your “home office”. Once this is established, purchase the tools necessary to make your area user friendly and organized – – small lamp, filing cabinet, pens, pencils, paper, stamps, envelopes, calculator, etc. No this is not an excuse to buy expensive new furnishings – – if you need a desk and have nothing in your home to use go shopping at a yard sale, thrift store or buy a cheap folding table at the discount store. Shop for supplies at the Dollar Store or while school supplies are on sale. You can continue to modify your home office as you save money for major purchases (see Step 7 later).
Step 2 –Set up a filing system. We were without a secretary for a few months at our office and the filing piled up (I would not go near the file room because I feared they would ask me to deal with it) because no one would take the time to file. Once the stack got out of hand, no one wanted to deal with it. This is the same with your bills and financial papers. If you allow them to pile up, you will always find an excuse to avoid dealing with bills, finances and other “grown-up” stuff.
The key to managing any project is being organized. If you establish a filing system before you have stacks of paper, you will be more likely to put away documents rather than throw them on a desk (counter, coffee table, night stand, etc.). The idea is to touch the documents as few times as possible – – bills go in the “to be paid” folder until they are paid and then moved over to their appropriate folder. Set up a filing system that is easy for you and fits your needs – – no one filing system is perfect or best for everyone. If you do not like your system of organization, you are less likely to use it; therefore, think about where you want to put things and try it. If you find something works better, make changes until you have the perfect filing system for you.
We created a virtual filing system for our documents – – we scan the documents and “file” each one in its appropriate file folder. This nice, neat green filing system keeps everything in its place. Just make sure that you have sufficient back-up procedures in place to protect against loss of information.
Step 3 –Purchase software to manage your bank accounts and personal finances. An essential element of managing your money is tracking your spending. The easiest way to do this is to use a bookkeeping or accounting program such as Quicken, Moneydance or GnuCash. By using a bookkeeping software program, you can easily assign categories for all purchases to create weekly and monthly reports detailing where your money is being spent. Furthermore, many banks now offer online banking tools that allow you to download your financial transactions directly into the accounting/bookkeeping software. Having a bookkeeping software will also help you create a monthly budget, automate and pay bills, track tax deductions, plan for major purchases and retirement (see steps in next two articles for more details).
My husband and I are avoiding cash purchases for two months so that all expenses can be tracked through our software. This will allow us to see exactly how our money is being spent (and wasted) and where we can cut our monthly budget in order to save more money.
Because projects are easier accomplished in small sections, I did the first three steps before attempting to move to the next three. The steps above are designed to help you get organized and ready to tackle your finances. It is ill-advised to run to the store, purchase a lot of equipment and supplies, come home and expect to immediately load everything and be a financial wizard. Start slow and set up the foundation – – then move on to the next three steps. The article is entitled “Building Financial Stability on a Solid Foundation” and is published here on Associated Content.