By Sabrina Loh
Determined to turn your financial situation around, you promised yourself you wouldn’t spend too much money this month. But despite your best intentions, you totally blew it.
It happens to the best of us.
Whether it’s because life got in the way or because of a spending problem, remind yourself that all is not lost. It will take patience, determination, and a lot of planning, but it’s always possible to get back on track again.
Here’s how to turn your finances around in 5 steps:
Step 1: Identify the problem
There’s a reason why you ended up in this position in the first place, so it’s important to be honest with yourself and identify what went wrong.
Was it because you were trying to keep up with all your friends' lifestyles? Or maybe an unexpected expense popped up?
Could it be because you were blindly spending without a budget? Or did you feel an uncontrollable urge to go shopping?
Whatever it is, you must identify the problem and confront it if you’re serious about getting back on track with your finances.
Knowing the trigger can set you on the right path to finding a solution to prevent it from happening again. For example, if the reason was unexpected expenses popping up, maybe it’s time to put money into an emergency fund.
Step 2: Assess your current financial situation
Now, you must evaluate where you are in your current financial situation honestly.
To get started, go through a few months of your bank statements to analyse your spending habits. Total up how much you spend on each category, such as eating out, entertainment, and shopping. You can also start tracking your expenses.
Then, calculate your net worth to determine the state of your financial health. This takes into account your assets, liabilities, income, and expenses. Learn how to do so here.
Let the information serve as a wake-up call to know exactly where you stand and move forward with the right steps.
Step 3: Create a budget
Now, you need a plan for where your hard-earned money goes each month. That means creating a budget.
A budget is a powerful tool that can help you to stay on top of your financial commitments, reach your financial goals, and actually enjoy your money without going overboard.
It doesn’t have to be overly complicated and restrictive when you choose the right budget.
Depending on your financial situation, that may mean temporarily spending less on certain things like entertainment and eating out while you’re building up your emergency fund or paying off debt.
Understand that budgets are fluid and are always going to shift. Who knows, you might even start looking forward to budgeting days!
Step 4: Revise your goals
Once you have a plan in place, it’s important to establish clear goals to help hold you accountable and to remind yourself of what you’re working towards.
For example, if you have a lot of debt, a great short-term financial goal may be to completely pay off your debt and spend less money.
Or if you struggle with impulsive shopping, you may challenge yourself to do a no-buy month (or year!).
These types of goals help you to see tangible progress and give yourself a reason to keep going.
Step 5: Stay motivated
Remind yourself that nothing happens overnight. Pat yourself on the back for reading up on solutions to this problem (like this article), form some good habits, stay consistent, and before you know it, you’ll be back on track again with your finances.
For more guides like this, tune into the BigPay blog every week.