5 Steps To Turning Around Your Finances

Joe Pawlikowski
Joe Pawlikowski is the marketing team leader at PushFire, a digital agency. He also runs his own consulting practice at JoePawl.com.
Joe Pawlikowski
Joe Pawlikowski
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Many people have been there: financial disarray. This day in age it’s not hard to get there. We’re encouraged to spend, spend, spend at every corner. Given the consumer culture and the unstable job market, it’s easy for anyone to fall into peril. Thankfully, there are ways to turn things around.

The following five-step program is by no means easy — it’s never easy to get out of debt and regain prosperity. But it does make the process as smooth as possible. Less resistance means a greater chance of success. If you’re in a poor situation, follow these five steps and pull yourself up by your bootstraps.

 

1. Take Inventory

Before you can change your behavior you have to take two important steps. The first is to take inventory. In financial terms, that means gathering together all of your debts and your assets. With these in hand you can give yourself a clear view of your net worth. If you’re deep in debt, this might paint a sobering picture of your finances.

Taking inventory has never been easier. With apps such as Mint.com’s personal finance software, you can just enter information for all of your electronic accounts. Since almost all financial institutions have electronic accounts these days, you’ll get a clear picture of your financial state. Even better, it will automatically keep up with you, so you’ll always have an idea of where you stand. That is, you won’t have to take inventory again.

2. Evaluate Trends

The second step in changing any behavior is to identify any trends that might lead you down the wrong path. If you’re in financial trouble, chances are you have a few behaviors that have led you there. By examining trends in your behavior you will be in a better position to make a change. Since you’ve already inventoried, you have the means to identify these trends.

Look back through your transaction history. Which withdrawals stand out? When were they made? What was going on around that time? Were you feeling a certain way, or was there some event going on? The more ways you can qualify each transaction, the clearer your picture becomes. Once you identify a few qualities that define your most egregious transactions, you’re in a position to stop them before they occur.

3. Portion Your Income

Creating a budget is perhaps the most effective way to turn around a bad financial situation. After you’ve taken inventory

you can then determine how to budget your income. The problem with most budgets, though, is that they don’t provide the most accurate picture. Paychecks and pay periods can vary, and that can throw off any monthly budget. It’s best to create a portioning system. For instance:

  • 40% for paying off debt
  • 30% for housing and utilities
  • 15% for food
  • 8% for transportation
  • 7% for entertainment

Clearly everyone will have an individual breakdown, but the idea is to figure out the minimum levels needed for necessities (housing, food, transportation) and then portion out the rest as needed. Creating this kind of framework helps you automate your finances, so you don’t have to think about it. Every time you get paid, you just add the appropriate percentage to each “account”. When you get out of debt, you can swing around and create savings.

4. Track Your Spending

If you’re going to stick to a budget, you need to keep accurate records of what you spend. That means being diligent at all times. Thankfully, there are ways to make this process easier. You can use a small notebook and pen you carry around, or you can download an expense tracking app such as ExpenseTracker. Every time you spend, make a record. That way you’ll know when you’re sticking to your budget (especially if you follow No. 5). Save your receipts as a backup reminder.

Yes, the Mint.com app does keep track of your spending and even categorizes it. But the point of this is to create a connection between you and your money. There’s no feeling of parting when we swipe a credit card. It’s just electronic digits. By writing down your spending you’re re-creating the connection we had with money in the old days, when cash was among the only means of payment. Taking this small step will make you more aware, and hopefully more responsible.

5. Review nightly

The final step is to remain diligent. When it comes to your finances, that means making records every night. Hopefully you don’t spend money every day. Even if you don’t, it pays to look over your records. It’s a good habit to get into even if you’re in good financial standing.

Everyone falls into bad habits from time to time. Sometimes those bad habits pile up, leaving us in a sorry financial state. But with a quick five-step program anyone can turn around a poor financial situation. Look at those five steps and ask yourself: is this little effort really too much if it will turn around my finances? 

Comments

  1. “3. Portion Your Income

    40% for paying off debt
    30% for housing and utilities
    15% for food
    8% for transportation
    7% for entertainment

    do not you think 5-10% of your income shall be put aside just for unforseen expenses?


  2. Twitter:
    Well, for me I will limit my expense everymonth by setting up 2 bank account. And then do a fix money transfer from my main bank to my 2th account which is use for daily expense.
    Winson Yeung recently posted..4 Ways to Use Social Media to Boost Your SEO ValueMy Profile

  3. it is a great tips.i think financial situation helps to make a budget line.
    Shamim recently posted..Good Diets For Men and Women to Use Together at HomeMy Profile

  4. Great tips! Portioning income will help perhaps wasting money in useless things could helps a lot in savings like when we buy any product or anything we should think on is it worth money? do I have a benefits from it? What will be the service costs in future if any and can I afford it?.

  5. Nice tips! I especially like your portioned budget breakdown.

    I personally find that leaving 10-20% untouched is a great way to increase your security. A lot of people may be surprised by how Parkinson’s Law relates to budgeting income and how reasonable it is for most people to at least “get by” on 10-20% less of what they earn.

    Just a thought. Nice post!


  6. Twitter:
    This plan should be really useful for me. I always find myself “broke”
    Leslie Edwards recently posted..Music Production Basics: CompressionMy Profile

  7. Hello!
    Thanks for your article! For me it was very helpful. Specially the tip of portioning the income. I’ll try to do it.
    Ksiusha recently posted..Karaoke en RusoMy Profile


  8. Twitter:
    Well planned way for financing yourself Joe. Well said after earning some finance , it becomes , more important to manage the whole economy.Nice tips .Thanks for them.
    Mahendra recently posted..Ways to reduce cell phone bill :easy and effectiveMy Profile


  9. Twitter:
    Hey Joe,
    Nice post and Thanks for sharing these important tips with us. I really like all the points mentioned above and like the point that we have to follow the trend and change according it. Yes, we have to portioning the income.
    Sudipto recently posted..How do You Make a Video with PicturesMy Profile


  10. Twitter:
    We should review our strategy and we must follow the trend. Nice post thanks for sharing it.
    Prakash recently posted..Download Viber for PC or Computer, Mac, Android, BlackberryMy Profile


  11. Twitter:
    Thanks for a great article Joe. I’ve decided to use the 7% entertainment expenses to try my hand at forex trading. Wish me luck everyone.


  12. Twitter:
    Very sensibly laid down points there. I am sure no one of us would land himself in a mess if he took care and followed all these steps religiously. It is always better to be safe than to be sorry, due to which I always go an extra mile to ensure that my resources are well handled and giving me optimal returns.
    Ambika Choudhary Mahajan recently posted..Why do Restaurants Attract Theft?My Profile


  13. Twitter:
    Hi,

    Speaking about expense tracking app, I’ve found that using Toshl (toshl dot com) is the most enjoyable way to track our expenses. It is available on iPhone Android Blackberry and many other platforms. It’s free but also provides a pro features such as input more than 1 expense a month, convert the data to PDF/other format, etc.

    PS : I’m not affiliated with Toshl
    Prabowo Murti recently posted..Strategy for Business : Simple ApproachMy Profile


  14. Twitter:
    I guess if 1 gets in right Profession like me, you need not to write these type of posts :P

    no offenses mate :) BTW nice info. Thanks :)
    Vineet Gupta recently posted..How A Common Man Can Become Rich ?My Profile


  15. Twitter:
    Prettyy True and i agree……Taking inventory has never been easier. With apps such as Mint.com’s personal finance software, you can just enter information for all of your electronic accounts….:
    :)
    SAJID recently posted..Gmail Login – http://www.Gmail.com – Gmail Sign InMy Profile

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