February 2011

Has the conversation finally occurred?  You know the one: “we have got to get our finances under control!”  “This time, I’m serious.”  Hopefully, you have finally agreed to begin your journey toward getting your finances under control.  You’re really excited and ready to go.  But, then, you just kind of look at each other not knowing where to start.  Here are four steps to get your new financial life underway.

1) Get organized. If your filing systems consists of a shoebox or a sink (yes, I had a client who actually threw receipts into a sink!), then chances are you are not very organized.  I have found a direct correlation between organization and success with money.  Very rarely is someone who is struggling with their money extremely organized.  The chaos of your financial records is part of the cause of the chaos in your overall finances.  So, start your journey by getting a filing system in place.  Start going through all of your paperwork and organizing it neatly so you can easily find important documents such as tax returns, Roth IRA statements, and mortgage papers.

2)    Find out where you’re starting from. It’s time to take an accounting of where you stand.  This includes making several lists.  You need to determine your monthly take home pay.  Then, make a list of all of your monthly expenses.  Next, do an equity sheet that will list everything that you own (house, vehicles, retirement accounts) and everything that you owe.  The number at the bottom will give you your net worth.  You also need to make a list of all of your debts.  Finally, take an inventory of all insurances/wills/estate planning you have in place.  You can find a financial checklist on the resources section of my website to help you with this.  This will be easier than you think once you accomplish step #1.

3) Determine your goals. The next step is to write down 2-3 financial goals for the next 6-12 months.  Once you are organized and have found out where you stand financially, it is time to plan out where you want to go.  Write the goals down and keep them in a prominent place as a reminder.  Make sure that the goals are measurable.  For example, do not just state “we are going to reduce our debt.”  Instead, make it measurable by stating “we are going to reduce our debt by $8,000.”  Also, give yourself a deadline.  Don’t leave the goal just kind of hanging out there without a specific time by which you will accomplish it.  So, to finish off the above goal, you would need to add “we are going to reduce our debt by $8,000 by September 1st, 2011.”  Having a goal that is specific, measurable, and within a time limit will help ensure that you will achieve it.

4)    Do a budget! The previous three steps could be considered planning steps more than action steps.  Now it is time to put some action to your plan.  If you want to get control of your finances, you must have a budget!  In case you didn’t catch that, YOU MUST HAVE A BUDGET!  Telling your money what to do before each month begins is the only way to have complete control over your money and to be able to stretch those dollars farther than ever.  Once you have a plan down on paper, you can start accomplishing the goals you set in step 3.  For a basic budget form, head to my resources page.

Doing these four steps will get you well on your way to achieving financial freedom.  It may seem like a lot to do, but once you dive in and start it, you will find the little bit of hard work will pay off.  Starting your journey is the hardest part.  Are you ready to begin?

I’m curious, how many of you have decided to start getting your finances under control, only to get frustrated and give up?  Please share your story with us!

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