3 Basics to Getting Started

If you ask someone if they want to be a good money manager you’ll probably get the same response time and time again: Yes! Problem is, very few people actual are over the long run. Have you ever wondered why this is. I have. The principles behind good money management skills are easy: Get paid,pay bills, save for future, repeat. The math isn’t necessarily hard and comprehension is at a 6th grade level at most. So why aren’t more people experiencing long-term success? If the math doesn’t change and the principles behind it stay the same, then there’s only one direction to point the finger: Back at myself.

When it comes to good money management, the number one problem to being successful is our self. We get in the way more than all other possible reasons combined. We decide to buy what we can’t afford. We choose to charge when we should pay with cash. We decide to spend all of our paycheck and put nothing in savings. We do it all. I can’t remember the last time I rolled into the bank with a deposit for my savings account in hand only to be met by a forceful Craigslist.com posting for latest steal of a deal. I can’t say I’ve ever been kidnapped to an All-Inclusive Caribbean vacation package at the hands of my Worldperks Visa credit card. What I can remember are purchases that seemed oh-so-good at the time but oh-so-bad when the bill came.

We control our financial outlook. Period! You, like me, and everybody else in this world make a decision each day how our money is going to be managed, whether by choice or indifference. Instead of the indifference route lets pursue the strategic choice method. Here are 3 basic steps to getting started.

1. Get Organized

Too many people don’t have a clue where to begin because they don’t have a clue where anything is at (your finances that is, not Starbucks). This is probably the single largest hindrance to good money management. When we don’t know where our money is at and what it is being spent on, we are more prone to over-spend and under-save. So get organized. Take each recurring bill, statement, and pay stub(s) you receive and create a folder for it. Make sure everything pertaining to your finances has a home. Once you’ve done this, breathe…..You are now further ahead than most people.

2. Take a Closer Look

Here’s where the real work begins. Once you’ve organized your financial information and you have room on your desk, make a list of all your monthly (or regular) expenses and income. Categorize this list into sub-categories like utilities, home expenses, auto expenses, and revolving account(s) (credit cards, store cards, etc.). It will probably take a little time but make the list as detailed as you can. If you have multiple credit cards, list the minimum payments for each separately, the corresponding interest rate, and the due dates. Do the same for your auto loans, home mortgage, equity lines and so on. This will help you immensely later on. When you have all this listed make a “totals” line (also called a balance), adding up all your monthly expense and income to see where you stand financially. Multiply this out by 12 (months) and you’ll know where you stand for the year.

3. Make a Game Plan

If you’ve completed numbers 1 and 2 then you are on your way to a better financial future. The work is not finished (actually, it never is) however, until you make a game plan. At this point there are two people (scenario’s) to look at. The first is the person who took a closer look and realized that the numbers are all out of whack. The expenses are higher than the income; Nothing, or next to nothing, is going into savings; Debt is rampant. It is usually about now that you feel that the walls are getting closer to you as you sit at your desk. Air is in short supply and the demand is huge. The heart begins racing a bit as a little voice in the back of your head starts whispering something to the effect of “is it really this bad”, or “this can’t be right”. Unfortunately, most people fall into this group. And even more unfortunate is the fact that most people in this situation don’t even realize how bad off they are, but that’s another story (I’ll address it later).

If you happen to fall into the second group and your financial situation is beyond treading water, then congratulation. This doesn’t mean you’re off the hook, however, unless you have solid plan in place and you’ve directed where all of your money is going. But for sake of this article and because the majority of people reading this probably fit into the first category, that’s where I will focus the discussion.

Making a game plan requires us to purposefully take control of the reigns of our finances and direct them down the path towards long-term success. If your bottom line doesn’t pencil out the way it should you’ll need to dig in. There are only two ways to change the bottom line: spend less or earn more! A combination of each would be ideal, but I’d settle for at least one of the two for now. Cut back in the areas that are draining the majority of your finances and quit buying “stuff” you don’t really need (I’ll get into the “NEED vs. WANT” issue in an upcoming article). For the immediate future focus strictly on getting your bottom line balanced.

I could continue on this subject for pages and pages, but I’ll save it for future posts. If this was helpful at all let me know. Even better, if you have a specific question or would like to share the financial situation you are in currently send me an e-mail @ gabe@moneytalkwithgabe.com. Now go get started!