Why are some folks so bad with money? You know the people I mean: your sister who simply can’t walk past a sale; your mate who thinks that carrying debt around is okay because everyone does it; your best friend who believes that saving for retirement comes after buying a round.
If you’re the one who is bad with money, do you think it’s because no one ever taught you what you should do? Do you have a sense that you’re not in control, that things just happen, that no matter how hard you try, you’re always behind the eight ball?
Repeat after me: “I do have control.”
Now say it again.
If you accept the fact that you have control, your next step will be to exercise that control. I know that there are days when you don’t want to do it, when you say, ‘I just can’t be bothered.’ But you must. You work hard for your money. It’s time to take control of it.
Tracking what you earn and what you spend doesn’t have to be complicated. Get a notebook and a pen. Those are the simplest tools to use. If you’re more ambitious, you can create your own spreadsheet, find an app or signup with an online financial aggregator. (Careful about choosing one that doesn’t require your PIN numbers since handing them out is a big no-no.) No matter how you choose to track your money, these are the steps:
1. Write it down
Keep a spending journal where you write down every penny you spend and deduct it from how much you have left in the bank. This will help you keep track of all your spending and figure out which expenses are unnecessary.
2. Deduct your fixed costs automatically
At the beginning of every pay period, deduct exactly how much money is coming out of your account to go toward fixed costs. Those might include mortgage payments or rent, insurance, car payment or transit costs and all your other fixed expenses. Then you’ll know exactly how much money you have left to spend on your variable costs.
3. Mitigate your risks
You must have a combination of an emergency fund and enough of the right kind of insurance. These are non-negotiable. The idea of not having enough money in the bank to do something I have to do is anathema to me. I can’t even conceive of not being able to buy my kids food or pay my hydro bill.
4. Pay off your debt
Yup, you’ve got to do whatever it takes to eliminate your consumer debt lickety-split. That means three years or less. Forget paying the minimum payment. If you owe $2,500 on a credit card with an 18% interest rate and you just pay the minimum each month, you’ll end up spending more than $4,000 in interest.
5. Stop going into debt
Using credit and not paying off the balance in full every single month means you’re spending money you haven’t yet earned. If you want something, save up the money. Once upon a time there was no credit and we were fine. Now we spend gobs of time working to pay interest on crap we bought that we didn’t actually need all because we didn’t have the discipline to say, ‘Not yet. Not until I’ve saved the money.’
6. Save for the future
It’s a’comin’ and if you’re not ready with some money, it’ll be a sad life being old and poor. It doesn’t have to be a lot to start. Just start. Then look for ways to build your savings. And remember, the earlier you start, the less you have to save to have what you’ll need when it comes time to hang up your spurs.
Once you take control of your finances, you simply will not believe the sense of freedom, the calm, which come as a bi-product. Until you have experienced the confidence that comes from knowing you have money in the bank – of knowing that you can cope with just about anything life throws at you — you can’t even imagine the sense of balance that control will give you.