How to Manage Your Finances

Skills How-to

How to Manage Your Finances

When you’re in debt, life is stressful.

You have to pay more for everything, and it never feels like you have enough money.

It’s hard to make it through the day without feeling overwhelmed by panic or guilt.

However, you can do things to get back on track if you want to regain control over your financial picture.

In this article, you’ll learn steps to take that can help you more effectively manage your finances.

The “snowball method” is a form of debt reduction that simply means paying off the smallest debts first.

Figure Out Your Debt

If you don’t know how much you owe or to whom, getting a handle on the situation is the first step as you work to improve your finances.

You can find out how much you owe by making a list of all your accounts with a balance due. Look at all credit cards, car loans, and other installment debts. Write down the interest rate on each one.

You can get this information online or your statements. If you’re old-fashioned, call the customer service phone number on each account and ask for your current balance.

Making a list of creditors will help you establish order. It’ll become easier to see the situation as a whole. By doing this, you can decide who is most important and deserves your attention first. You need to know who should take priority over others as you work to pay off debt.

Create a Plan to Pay Down the Debt

The “snowball method” is a form of debt reduction that simply means paying off the smallest debts first.

For example, if you have a few credit cards and also a car payment, you’d usually pay the car payment before anything else.

In contrast, you would pay off the credit cards first with the snowball method. They have a lower monthly payment and usually carry a higher interest rate. Then, once you eliminate those debts, you could apply their old monthly payments to your car payment to pay it off faster.

The idea is to pay little debts first. Put as much money toward them as possible, which will lead to an overall lower debt amount in the long run.

Cut Back to the Essentials and Live Within Your Means

It’s time to cut back on your expenses. Begin by cutting out nonessentials while still maintaining a decent quality of life.

Here are some things you can trim while remaining functional.

Housekeeping

Dining out

Shopping for new clothes

Gym membership

Cable

Cell phone service

Also, you should avoid taking on any new debt until you’re caught up on payments from past debts and have a budget in place to cover necessities. Doing this may mean temporarily having less than ideal living conditions as you work your way back to financial security.

Create a Budget and Stick to It

Create a budget and stick to it no matter what. If you’re already in debt, this is the number one thing that will help you get out of it.

List all your bills with amounts due, loans, etc. List all income coming in from work (including other jobs), social security, etc. Write down the total amount you expect to receive each month. List all your assets (savings/retirement accounts).

Figure out how much money will come in vs. what goes out and decide where to make any additional cuts. Consider selling some of your assets, if necessary, to keep afloat while still living comfortably.

Create a budget and make sure you can live with it. If it doesn’t seem to work immediately, go back and revise it. A set budget will keep you from getting back into trouble again.

Is all of this getting out of debt, cutting back on things, or creating a budget easy? Absolutely not! However, it’s no fun looking at those debts, right? Work hard now to get back on track, and then you can manage your savings better going forward.

Establish a Savings Plan

Once you’ve set a budget and can consistently live with it, start putting money towards savings. Start an emergency fund first, where you work to build up at least three to six months of living expenses.

Fund retirement accounts second. If you can contribute enough to get an employer to match your funds, do that. It’s important to treat your savings as a bill that needs to be paid every month like your other bills.

Don’t touch any savings unless it’s an emergency or if the money is for retirement purposes.

Consider Bankruptcy Only as a Last Resort

Though many people think of bankruptcy as the end, it’s actually a second chance if you discover that your financial picture is too bleak. If you’ve already cut back on everything and can’t keep up with payments no matter how much you earn, then bankruptcy could enter as a discussion point.

Though filing is difficult, it’s better than dragging yourself deeper into debt and into a situation that only becomes harder to recover from.

Consider hiring an attorney to help with the process. You might enjoy someone guiding you into the correct decisions.

However, before going down this route, make sure you’ve exhausted all other options available for managing your finances.

Invest in Yourself by Continuing Your Education

Consider taking a course or two to learn a new skill. You can turn new skills into better opportunities for making money. Sometimes, additional income is necessary as you manage finances, get out of debt, and save for the future.

Maybe you can create an online course or membership. Set up a new website to sell it on. Use FB ads or other marketing methods to find people to purchase it from you.

Even an online course about managing finances could work. Why not help them with their money problems while you solve yours? Remember, the best way to learn about managing your finances is to teach it.

By learning new things and developing new skills, you can increase your income to better help manage your financial picture.