Latest posts by Joe Pawlikowski (see all)
- Top 5 Apps All Small Businesses Need - May 12, 2013
- 5 Crucial Tips for Buying a New Smartphone - March 9, 2013
- 5 Steps To Turning Around Your Finances - February 20, 2013
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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?
Twitter: nerdsoncall
if all of your planning doesn’t stop you from going over your budget, check out http://www.MVElopes.com. It adapts the time-tested methodology of “envelope spending†to today’s cashless world. The idea behind “envelope spending†is that you cash your paycheck and separate the money into envelopes dedicated to your spending categories (like rent, groceries, utilities, eating out, savings, etc.). You’re only able to spend the money in the envelope, and if you want to spend more on that category you need to wait until your next payday, or take it from a different envelope.
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Twitter: mujhmehaiwobaat
I agree with the guest that we should follow the trend and change accordingly with time also if you will have a look on evaluating trends,while looking back through your history of expenses you can easily understood where you should spend your earnings and where you should not , any ways good job and helpful tips to follow
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Hey Joe Pawlikowski !
well very interesting and important post just according to the present need. I really liked the idea of budgeting , but it’s harsh to follow the budgeting plans, at least for me. But I will try to follow.
Thanks.
Matt
Matt recently posted..Become Part of the £200,000 Foxy Bingo Family
Twitter: freedommmc
STOP PAYING EVERYBODY.
Create an approval process before any bill get’s paid.
If it’s not critical let it go.
Pay yourself first no matter what.
Darnell Jackson recently posted..The Everyday life of the connected consumer [InfoGraphic]
Great .. and pay from your pocket not from credit ..
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Depts are a real pain.. I try to avoid them but it is hard when the tamptation is waiting you on every corner. Thanks for the tips, the post is really гз-to date…
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Very well interesting and important post ! I really liked the idea of budgeting , but it’s harsh to follow the budgeting plans for me. But I will try to follow.
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Twitter: internetdreamof
Finances can be a tough cookie for us all.
Budgeting everything you buy and pay for will give a sense of actually knowing where your money is going.
I am a young guy still, so I am not really experienced in finances
Thanks for the tips though!
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Very interesting article. Finances are a tough issue for most of us, and usually people don’t like to think or talk about them – however, this is the first step (I mean recognizing) to a healthier financial life.
Problems have to be tackled as soon as possible, in order to be able to apply the steps you highlighted above.
In any case, although i just solved my 3-4 years of financial issues, it is always good to remember this not to fall again into the banks trap
Twitter: bitdoze
Thank you to for taking the time to put together such a good plan for us! It is very hard in this economy not to mess up your budget somehow- and the market comes up with such tactics to make you spend more then you often end up with a pile of useless things and an empty pocket and usually you don’t even realize how it happened.
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Twitter: umpreetturtlers
Yes a well planned schedule and expenditure model can help you save and help building your confidence too. One must not spend without planning.
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Twitter: WerryAdnan
Financial disaster is nightmare for everyone. To avoid this problem we have to make financial planning. The key in financial planning is your income must be higher than your expenditure. This great post show us how to manage our expenditure wisely. I learn a lot from this post. I’m sure these 5 tips will make our financial condition better. Thnaks Joe for share this information
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Twitter: HoutsGraphics
My wife and I are working hard on eliminating our debt. We have an 8 month old son now and need to build our nestegg. It makes a huge difference
Twitter: pathaderavi
Setting Up Regular Budgets and Paying attention to Required Fields of Economy is the Most essential. Thanks for the Tips
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I use the Mint app and its great for catagoizing your spending and analyzing where to cut back. The hardest thing is to be aware of how your spending while your out.
Twitter: style_driving
A very useful post for managing finances,
Portioning your income is a nice idea that i had not thought of before so thanks for the tip !
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Twitter: The_ESman
Hi Joe,
Your article is just great I like point number 3 which talks about portioning Your Income. I believe if anyone sticks to this plan he/she should be able to save after all the debts are covered.
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Twitter: Praveen_Bhrdwaj
Again a great article. Using cash in place of credit card really changes your budget on shopping. I’ve personally tried it.
“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?
Twitter: winsonyeung
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.
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it is a great tips.i think financial situation helps to make a budget line.
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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?.
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!
Twitter: musicianmakers7
This plan should be really useful for me. I always find myself “broke”
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Hello!
Thanks for your article! For me it was very helpful. Specially the tip of portioning the income. I’ll try to do it.
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Twitter: mchhimwal
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.
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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.
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Twitter: Techblowup
We should review our strategy and we must follow the trend. Nice post thanks for sharing it.
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Twitter: harounkola
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.
Twitter: ambikamahajan
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.
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