3 Steps to Getting a Grip on Your Finances (Even If It’s the Last Thing You Want to Do)

Picture this scenario. You just got home from a busy day of work. Your mailbox greets you with the usual junk mail and the household bills. How does it make you feel?

If you already know you can pay all those bills, an overflowing mailbox won’t phase you. But if you don’t have a solid grip on your personal finances, they could leave you with a sinking feeling in your gut, not knowing whether you can cover them all.

If you’re in the second category, you’re not alone. The reality is, many people face that feeling of dread. What separates them from the first category of people is a budget and a clear picture of how their finances are structured.

When I mention the word budget, I usually get a sigh and look of resignation from my clients. Many of us already know budgeting is something they need to get to grips with, but knowing where to start can be difficult.

Here are three simple steps to creating a budget.

1. Look at your spending habits

When it comes to creating a budget, a good place to start is with your checking account statement(s). That’s where you can see all your recurring bills and income in one place, so you can categorize your spending and work out where your money is going each month.

You might be surprised at what you find. Personally, the amount of money I spent on takeout coffee always surprises me. Even with an initial glance, you should be able to identify areas where obvious reductions can be made, so you can redirect that money where it’s needed.

2. Do some simple math

Budgeting doesn’t have to be a long and arduous process with tons of complex formulas. In fact, it’s best to keep things simple.

The simplest format for a budget is to list all of the bills and expenses you have for the month. Then, deduct your income for the month. If the number is positive, great! You can start looking at longer-term goals. If the number is negative, now is the time to act.

Sadly, many people end up with a negative number yet completely ignore the issue by using credit cards and other short-term loan methods to cover the extra costs. This isn’t sustainable, and will eventually lead to interest charges and minimum repayments, compounding the problem.

Instead, it’s important to revisit your budget. Look for areas where you can reduce costs and/or increase your income. Could you eat out less? Take on a side gig? Shaving a few dollars off each category can make a big difference overall.

3. Create an annual budget

Steps one and two will help you work out your monthly budget. Then, the next step is to come up with an annual budget that covers those costs that aren’t so frequent. That includes things like gifts, insurance premiums, and yearly subscriptions.

Some of these annual costs can be spread across the year with installments, while others are one-off payments every twelve months. Get crystal clear on all your payment options, and then budget your income accordingly. One-off payments can be saved for months in advance, while monthly-installments should be included in your monthly budget.

Next steps

As you delve deeper into budgeting, things can get more complicated. There are many software options available to help, including the myworthfinance app, whose prompts can help you remember and organize the various types of bills you receive throughout the year.

Remember that our lives change frequently and so do our finances, so you can’t just “set it and forget it.” Be sure to revisit your budget at least once a year. Reviewing it quarterly and making updates can make your life even easier.

Once in place, a budget can give you peace of mind and help you make financial decisions based on facts, not hope or a sense of ‘maybe.’ It also allows you to see your progress in saving or repaying debts. It may not be the most glamorous thing in the world, but the earlier you get started, the more manageable your financial life will be.