How to take control of your money

January 14, 2013 — 33 Comments

You can’t live life on your terms until you take control of your money.  If you’re busy worrying about how you’re going to pay your bills next month or wondering how you’ll retire, how the heck are you going to find what you love?  I’m passionate about this stuff because I’m speaking from personal experience.

I went deeply into consumer debt and felt like I was working just to try and pay it off.  It’s only when I finally paid it off that I felt like I could start focusing on what I love.  Now, I’m going to share my plan with you!

“What greater wealth is there than to own your own life and to spend it on growing?”  – Ayn Rand

These are the steps I use to take control of my money:

How to take control of your money

Hulk Hogan knows how to take control of money!

1. Complete a current assessment

2. Track your spending

3. Create a spending plan

4. Monitor plan and adjust as necessary

5. Save some money

6. Attack your debt

7. Start Investing (if you haven’t already)

 

Let’s get started

1. Complete a current assessment

The first thing you need to do when getting in control of your money is to complete a current state assessment.  This is nothing more than figuring out your money story including how much money you owe, and what your assets are. It’s hard to figure out where you are going until you know where you are.

Gather all financial documents relating to debt – mortgage, credit cards, student loans, personal loans, etc. Make sure to get as much information as possible, including total amount owed, interest rates, etc.

Download the current assessment form.

A. Fill out the liabilities section of your current assessment

Fill out the short term and long term liabilities as noted in the form.  Long term liabilities will be anything over five years.  If you have other debts not included in the form, add those in and make sure you include them in the total.

B. Now for the more positive part (for some): it’s time to see how much money you have!

List out the money in bank accounts, stock accounts, and any other ‘liquid’ accounts.  Liquid accounts are basically accounts you could get cash out of right away – not including 401ks, IRAs, and other long term investments.

You’ll now calculate your net worth based on this information; you can also read how to track your net worth which includes the worth of houses, cars, etc.

 

2. Track your spending

The next step is to figure out exactly where your money is going today.  One thing is certain, if you don’t tell your money where to go it will start sneaking out, staying out late, and running away from your pocket!  You need to figure out exactly what is eating up your income.  This is where I figured out I was actually spending more than I was earning each month.

Download the spending tracker to assist you in this task.

There are many good websites that track your spending on credit/debit cards such as mint.com, but you will need to manually track cash spending in the tracker.

Try to figure this out for the previous 2-3 months and then track it continually going forward.  This will help you figure out where your money is going today and get you in a routine of always monitoring it.

 

3. Create a spending plan

Many people get the shivers as soon as they hear the word BUDGET. Ok, then I’ll call it the spending plan – that better?  You need to have a system in place to determine how much you have to spend each month. It’s not good enough to ‘do it in your head’ so drop that argument.

Download the spending plan to create your monthly budget – thanks to my friend Kyle for creating the really great template.

Customize the spending plan by filling in the categories you determine important.  If you already started tracking your spending, use your spending tracker as a guide to create your planned spending for each category.

Even though you might be pissed that you are spending $300/month at the bars, don’t cut it down to zero right away and vow to never do it again.  Instead, be realistic about your plan because if you set your numbers too low and already blow through them mid-month, it won’t be helpful for your cause.

For more information on creating a spending plan, read how to create your budget.

 

4. Monitor plan and adjust as necessary

Now that you’ve created your spending plan, you need to track against it as the month goes on.  As I mentioned in step #3, you may be surprised about how much you are spending on certain areas.

Your numbers will probably change now that you’re monitoring your spending so feel free to move your numbers up or down in certain areas.  Now, for one of the most important parts… don’t give up!  If you do, you’ll be in the same position that you were in before.

Use the knowledge you have gained from analyzing your spending and creating your spending plan to keep the momentum going.  This needs to be a change in the way you live, not a temporary diet in your spending.  It’s going to be so worth it… just imagine how great it will be!  (Ok, it might suck for a while when you change your lifestyle, but it will be worth it in the long run)

 

5. Save some money

Now that you’re controlling your money, it’s time to start thinking about saving.  How should you handle your new found money?

A. Create an emergency fund

The minimum amount is $1,000 to cover unexpected expenses.  Over time you should build it to 3-6 months of income, but it will take much more time to get that much.  You should keep your emergency fund in a liquid account such as a high-yield savings account.

B. Pay yourself first

Another important part of building your savings is to pay yourself first.  This means you put money into your savings account before you spend it on anything else.  You can do this by setting up an automatic withdrawal through your bank a few days after you get your paycheck.

Some people want to save the money at the end of the month after they figure out how much they’ll have left.  However, this usually ends up being zero, but when you pay yourself first, you’ll usually get through the month fine… so that excuse is done too!

 

6. Attack your debt

Maybe you’ve made some bad decisions and amassed a large amount of debt or maybe your debt might have come from more conscious decisions like student loans.  Either way, if you’ve followed the previous five steps, now is the time to attack!

I used the debt snowball method that Dave Ramsey recommends.  Use the snowball method by listing your debts from smallest to largest.  Proceed by paying the minimum payment on all bills except the smallest – which you’ll attack with all of your extra money.  After you pay off the smallest, use the same process for the next smallest.  It’s a growing snowball – maybe even an avalanche – because your ability to pay goes up as each new debt is paid off.

Check out the spreadsheet Kyle created for his snowball process. It’s a great tool!

 

7.  Start Investing

Now that you have control of your money, it’s time to start investing.  Follow these steps to start investing.  This is where the magic truly starts to happen and you’re on your way to becoming a millionaire!

 

Oftentimes, you won’t get motivated to take control of your money unless things are going really bad and that’s what happened to me when I had my breaking point.  I was so tired of feeling like I was working to pay off my debt, it just couldn’t continue like that.  How will you take control of your money?

Sharing is good for you and me!Share on FacebookTweet about this on TwitterShare on LinkedInEmail this to someoneShare on StumbleUpon

33 responses to How to take control of your money

  1. That is a great plan.I need to try tracking the actual spending. The steps you said are good ones to follow. Hopefully, your readers will Break Free with your suggestions. I am working on it.

    • Bindu – tracking your spending really is key. Many people say they feel like they got a raise once they start tracking their spending because they feel like they have a lot more money!

  2. Good tips Dan and I think number 6 is important as it is about taking action step by step. I am sure these tips will help many others.

  3. setting a budget and paying ourselves first really are some of the hardest things for us. This is something we really need to work on.

    • Jon – I’ve definitely been the guy who says I’ll just save what I have leftover at the end of the month… Which turns out to be nothing!

  4. This stuff is going to make a great book! I will be first in line to get it. 🙂 We have already been putting this information in to practice. 🙂

  5. Dan, thanks for sharing. We have over a million in debt, mostly real estate related. It is funny how we got there. I had built a house before we got married, my wife had a house as well, so we tried to sell hers to no avail after we married. We had purchased a few rentals with the hope of flipping them (again to no avail). Having used up most of our cash on down payments and rehabbing, Home Depot got my business when it came to remodeling my lower level. I have a plan that will have us completely debt free in five years if our income doesn’t increase. When our income does increase, it will only shorten the life of the plan.

    • Mervyn – it’s crazy how sometimes we do things with the best of intentions and sometimes they turn out to be the worst things. The sad thing is that if you would’ve tried to do that a few years earlier and sold out in time, you’d probably be positive a million instead of down a million. Sometimes the timing is not on our side.

  6. This is good stuff. When we really look at how we spend our money and on what, it can be eye opening and a bit scary at the same time. That’s why I creat a budget and work hard to stick to it. 🙂

    • I always love hearing your stories of how you prepared to go full time entrepreneur. It’s amazing what we can accomplish with our money and expenses when we focus on them.

  7. Good Stuff! Although I don’t have any debts at the moment but definitely useful to take control of my money =]

    • Tommy – that’s the best time to get control of your money! Of course, most people have to get deeply in debt like I did before they start paying attention to it.

  8. Thanks, Dan, for the excellent advice and the worksheets. I’d take it one step further and review your fixed expenses to see if you can lower them. For years, we paid too much for my homeowners insurance which went up significantly every year. We were, in a word, over-insured. When my husband passed away, and I lost his income, I took a hard look and researched other companies. I lowered my monthly premium by $125 a month. Last year, for good behavior, my premium actually dropped a couple of dollars a month. I did the same with my cable and phone bill, eliminating the extras. I didn’t hurt one bit. So not only keep track of your fixed expenses, but try to reduce them as well.

    • Jeanette – what a tough way to be forced to review your expenses… I feel for ya. Great advice on reviewing your fixed costs. People mention car insurance a lot but not many mention home insurance so I’m glad you did. Thanks!

  9. Hey I have a problem with compulsive buying. How do I help or control it? (If that’s a dumb ?)

    • Hi – not a dumb question at all… that’s probably the biggest problem people have with money. My first question is if you have a regular budget? If you don’t, this will be a great place to start because it’ll force you to see where your money is going. The tough part is sticking to the budget – but if you’re serious about taking control of your money, you’ll be able to do it.

  10. I’ve always been a saver, but in the past year, got out of the habit after a cross country move. Now that I’ve adjusted my my new location and slightly higher cost of living, I’m determined to get back on track with saving. It’s so true that a person needs to simply treat savings as a bill they pay into the account every month. I also used to be so good about waiting until the end of the month to splurge, but that alas, has also gone out the window as my husband and I are not shy about treating ourselves to food and travel. A six month emergency fund is also in place. It would be great to see you do some posts about saving toward a down payment on a house. That’s where I need to tighten my belt and really save more.

    • Jeri – it’s so easy to get thrown off the budget plan. We did the same thing when we were in the middle of home renovations – the time when we needed to be on the plan the most! Good recommendation on saving towards a down payment… I haven’t talked about houses in a while so that’ll be fun. Thanks!

  11. This is a good point! You have to be attentive to your spending and try to control them. Take care of the pennies, the pounds will take care of themselves.

    • Lana – totally agree on taking care of the pennies. So often we just live day to day and don’t pay attention to what’s going on with our money. When we finally focus on it, great things can happen.

  12. Dan,

    What a great and detailed post. I love that you gave so much information, made it simple and provided downloads to really help people.

    Great job,
    Jenn

  13. I went a pretty good while making good choices. Then next thing I know I made a bonehead mistake and bought a new car. Talk about buyer’s remorse. I enjoy the car but, kick myself for not just being happy with my paid off car that was in great shape. Besides my mortgage I only have two debts, a consumer account that is 0% for the next year and the car loan. Should I focus my additional money towards the car and keep paying the minimum on the 0% account? I understand the emotional side of using Dave Ramsey’s approach, but financially it seems like a better choice to pay down the car loan that is costing me interest first.

    • Tom – don’t be too hard on yourself, most of us have been there. I did the same thing when I bought my new car in 2005. My old car was running just fine, but I thought I deserved better! However, one thing to keep in mind is that it’s not a permanent purchase. I went on paying between the minimum of $500/mo all the way up to $700/mo because I wanted to pay it off faster – this went on for two years. Finally, I had enough of the payments.

      I sold the car and bought a much cheaper car. If you will consider this, take a look at how much it’s worth now and how much you’ll lose. If you’ll only lose a couple thousand, it might be worth it. Otherwise, you’ll be paying your car payment every month while it keeps depreciating.

      If you want to keep it, I’d look to see the loan balances before giving advice. If your consumer account is only a few thousand and your car loan is $25,000, then I’d pay off the consumer account first. However, if your consumer account is more like $12,000 compared to that loan, I would probably go for the car loan first.

  14. These are some excellent ideas.

  15. Hi Dan,

    I’m a 29 year old woman living in NC. I make 45,000 a year and live paycheck to paycheck.
    I make a budget every month but some how seem to blow through all my money within the first week or two leaving me penny pinching till the next payday. I would like to save more and like you pay off consumer, car and student loan debt.

    I can say a bulk of my money goes to dinning out and shopping but never have anything to show for it really. Do you have an idea of what a single person’s expenes should look like monthly? Also how about taxes, what would you suggest a person claim for deductions as a single person? I don’t have children but I do commute once a week to take care of some family back home.

    Any advice you have to offer will be much appreciated.

    Thanks!

  16. I love your site and love how you even commented on so many people’s posts. Learned a lot.

    I laugh, because I live on closer to $30,000 a year and some of my friends live on closer to $15,000 a year, because they can’t get a full-time job, but looking at the spending plan. To me, having a strategy for how to change our daily habits helps.

    I cut the cable cord for television and didn’t add Netflix, I dumped the land line and dumped internet, which I can use after work or on my cell phone in free wifi spots. I started hanging up laundry and changing to LED bulbs to decrease electricity use and lowered my thermostat to where it never sees 70 degrees anymore. (I added insulation and new windows in the room I spend the most time, which made that room comfortable at 62 degrees) I cut down trees which were near the house, which lowered insurance.

    All of it affected the whole, but people who don’t make good money need to just suck it in and go to the library and take out videos and books, and dump things like entertainment and eating out.

    I used to drink at Starbucks, but realizing that I was spending over $1500 on coffee in a year did give me a way to reign things in.

    Research every single thing before you buy is my biggest advice to spenders. Read the reviews to avoid worthless purchases and compare costs on-line before going to any store. There are so many scams out there in every product category and I research everything now.

    • Deb – this is excellent! It’s amazing how unnecessary expenses eventually move over to “required” when we don’t pay enough attention. I think your trajectory is going to continue upward as your increased focus will pay off in other areas of life (like your work!). Keep up the progress and keep me updated!!

  17. I ended up making my own more detailed tables for the areas where I am vulnerable – to evaluate those issues at a deeper level.

    Where it says, “eating out” I made a more detailed table for that with each of the places I go, so I can see if I ever go back to Starbucks, etc.

    For my dog, I put “vet annual physical” “vet medical visit” “groomer” “food” “dental chews”

    Christmas presents and birthday parties and wedding and baby showers were always my hardest to figure out, because they cost so much – in gifts, wrappings and clothing and you can’t get out of them easily, but telling people you can’t afford it still works.

    Having those types of expenditures written in a more detailed way helped me to find out if I could do any of it cheaper.

    Information is our friend in this process.

Leave a Reply

Text formatting is available via select HTML. <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

*