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Starting to make any change in your life can be difficult. Any changes can be terrifying if you don’t know what you are getting into, but if you don’t make any changes, you will be in the exact same spot as you were one year ago. I think being stagnant in life is scarier than making a few things different in your life. Making a step by step plan to start changing can make the change not so hard.
If you have been following my journey for a while and you are ready to get started, here is super simplistic steps of getting started. I will tell you that working on your financial goals isn’t always fun. Here are a few reasons why you shouldn’t start your debt free journey.
The question I get the most often is probably asking for advice on how to get started. My response is usually “just start.” Just do one simple thing to change your finances. Even little things are going to help more than trying to figure out everything you need to know before you begin. My best quote is, “A year ago from now, you will wish you had started today.” So start today.
Here are 8 Steps to Take to Start Getting Your Finances Together!
Step One: Start an Emergency Fund
Emergencies will happen. It is almost inevitable to have something happen that you weren’t planning for. Having an extra rainy day bank account can make the blow of an emergency a lot easier to take. The first 3-6 months of following a budget will be sure to throw you for a loop. You will continuously be surprised by how many things you didn’t realize you were spending money on until you start tracking it.
Everyone’s emergency fund looks a little different. When you are first starting out, I recommend $1000 in an separate bank account that isn’t easily accessible. For me, I chose Capital One 360 Savings account. This account provides me with a little bit of interest every month, but it is still accessible enough that if I needed the money, I can get to it. You don’t want to store your emergency fund in the same bank as your regular checking, because I promise you, it will get spent over and over again.
Check out my full blog post on emergency funds if you need more help with this one!
Step Two: Review Your Set Monthly Expenses
Set monthly expenses is just my fancy way of saying bills. This can include (but is not limited to) rent/ mortgage payment, insurance, electricity/gas for your home, subscriptions and memberships, and everything else that needs paid on a set day every month. To me, these aren’t necessarily “needs” list because this can include the Netflix membership that comes out every month on the 5th. This list is just to give you a ballpark idea of what your housing and living costs you. These don’t necessarily include credit card, car, or student loan payments, but feel free to write them down in this step.
This is the first step of creating a budget. I recommend printing your bank account statements for the last 30 days. This will be a good indicator of where a majority of your money is going. Once you have your bank statement, go through and write down every monthly expense. Don’t stress about exact amounts during this step, but get a ball park for the next two months at least.
This is also a good time to track income that came into your bank account over the last 30 days. Get an estimated amount of how much you are bringing in. After you have all of your monthly expenses, total them and your income up. What do you have left?
Step Three: Look at Your Extra Spending
Extra spending includes things that are variable from month to month. For me, these include groceries, eating out, gas, entertainment, kids, pets, and clothing. This pretty much includes everything that isn’t attached to a specific day of the month or that happens multiple times a month.
When you go back through your bank account for a second time, take note of how much and how often you were spending on gas and groceries. Also, check out how often you paid for food at a restaurant. When doing this, you are likely going to find that you are spending a large amount of money on food. This category isn’t going to be pretty. It is important to remember that when you start doing this, you don’t have to get rid of everything. Here are 14 Things I Still “waste money” on.
This is going to be hard, but don’t get too down on yourself. You are now taking the first steps to fixing anything. If you regularly spend cash instead, start tracking every time you spend money. When I first started this journey, I had empty credit cards. I put all of my spending on a credit card all month to see how much I was actually spending. It blew my mind how much I was throwing away every month on groceries and eating out!
If you don’t know what things you are spending money on, check out my 70+ Spending Category Printable!
Step Four: Total Up Your Debt
Once you actively take this step, it is going to be hard to turn back without a guilty conscious. This is going to be the hardest step to take and it will probably be pretty emotional.
Now that you have looked at your regular spending and expenses, it is time to take a look at your debt payments. Log in to every single one of your debt accounts. This includes credit cards, medical bills, personal loans, car loans, and student loans (and anything else I could have missed). If you owe someone a significant amount of money, include that in your list.
I started with a simple excel sheet and just listed the account, the minimum payment owed, and the total amount owed. Add up the column to see what your total minimum payment is as well as your total debt owed. This is a starting point to making the changes that you want.
Read my blog post about creating your debt snowball to help you get rolling on paying off your debt.
Step Five: Set a Financial Goal
Based on your monthly income and your debt, start setting a few finance related goals. Make them as realistic as possible, but you still want them to challenge you. Setting S.M.A.R.T. Goals is extremely important so you aren’t setting yourself up for failure. You want them to be specific, measurable, attainable, realistic, and timely.
I recommend setting 1 week, 30 days, and 90 day goals. Then setting one broad year goal. For example, my 1 year goal from right now is to have purchased a house. These can be as simple or detailed as you want.
- 1 Week Goals: Don’t eat out at all this week. Eat the food we have to cut back on groceries.
- 30 day goals: Pay off my first credit card balance. Track every penny in and out. Get current on all expenses.
- 90 days goals: Put 10-15% of our income towards debt. Pay off XXXX amount in debt.
These goals are all going to be specific based on your expenses and income. If you are only making $30,000 a year, you probably aren’t going to set a goal to pay off $6,000 in one or two months. Figure out what you can do based on your income.
Step Six: Find 3 Things to Cut Back On
Cutting back on any expenses can be hard. Starting with just a few things can be a good beginning. Maybe you have a subscription that you don’t need anymore or you temporarily decide to cut one of your monthly memberships. There are plenty of daily habits that you can slowly change to help your bank account. Start using Ebates to save money when you are shopping online.
Cutting eating out and groceries is usually the best place to start. Most people overspend in these two categories the easiest. Here are just a few blog posts on cutting back on food expenses.
- My Number One Secret to Cutting Back on Your Grocery Bill
- 13 Ways to Avoid Eating Out
- 6 Foods to Keep at Home for Simple Meals
- How this Single, Millennial Spends Less than $200 on Food per Month
Step Seven: Start Building More Income
If you want to hit your financial goals, you can start cutting spending from the budget, but the fastest way to hit your goals is going to be to increase your income. When I started my debt free journey, I picked up more hours at work. I started this blog. Then I got a second job. Then I got back into my Mary Kay business. I started using different phone apps to create more income as well. I started a Poshmark closet.
There are a million things that you can do to create more income. Babysit. Dogsit. Goldfish sit. Seriously. Do anything you can to create a little more income and give yourself a little bit of a lead on your debt and bills. This blog has made me a little money and 100% of my profits after expenses have gone towards debt. Sell anything you can in your house on Facebook Marketplace.
I wrote an entire blog post on 10 Ways That I Make Money!
Step Eight: Dream About What Life Could Be Like
This is probably the best step. When you total everything up and you start seeing how much of your monthly income is going to debt, you are going to want to cry, (at least I did.) But afterwards, take a minute to sit back and think about what life could be like if you had that money going into your pocket every month. Think about your life without your car payments and credit cards.
If you have a significant other, I challenge you to talk to them about their goals and dreams. Maybe you want a boat or to spend every other weekend golfing. Picture life together with an abundance of money. If you are single on this journey, keep rocking on! Create a vision board of your goals, progress and successes.
While you want to be focused and cut money, remember that it is okay to enjoy life along the way too. When you start dreaming again, you can accomplish anything. Remember, Budgeting isn’t necessarily about not having any fun at all. Budget and plan for the fun things in life!
Bonus Step: Do A No Spend Challenge
These challenges can be for a few days, a week, or a month. I will be doing one the entire month of September so you can join me in my process!
Here are a few blog posts that I wrote about no spend challenges
- What is a No Spend Challenge?
- My 5 Rules for a No Spend Month
- How to Prepare for a No Spend Month
- How to Avoid Derailing Your No Spend Month Progress
- What I learned from a No Spend Month!
- Join me in a No Spend Challenge!
If you want to start to change your finances, I suggest that you grab a notebook and you start with step number one. It may not all happen today, but taking the steps in the right direction will start the change.