3 Baby Steps to Help You Take Charge of Your Finances

3 Baby Steps to Help You Take Charge of Your Finances - by Award-winning Financial Coach, Patti Fagan

 

Despite your best intentions, taking charge of your finances tends to get pushed to the back burner, which ultimately causes financial anxiety. You know you need to take care of these things. But you’d rather avoid the discomfort of facing your financial reality.

Well, guess what? You’re not alone. Lots of women avoid dealing with their finances. I, myself, avoided dealing with my finances for the longest time. Until one day, my finances started dealing with me. And not in a good way.

Does this sound like you?

Perhaps you’re afraid to look at your credit card balances.

Or, you’d rather not know exactly how much you spend on certain expenses such as eating out because then you’d have to go on a budget.

Or maybe you know you should be saving, but by the time month-end rolls around, you never have anything left to save.

Well, I’m here to tell you that whatever it is you know you should do but are afraid to do, is the very thing you need to do if you want to reach true financial freedom.

If taking charge of your finances scares you, or makes you feel uncomfortable in any way then help is on the way. Read on.

Here are 3 Baby Steps to help you take charge of your finances and reduce financial anxiety, so you can feel better about your money.

Baby step #1 – Build an emergency savings fund.

This step is foundational to taking charge of your finances and reducing financial anxiety. You have a whole lot more peace when you know you have money in the bank. Let’s face it, life happens; unexpected expenses happen. By having an emergency savings fund, you won’t have to put those expenses on a credit card, which means you won’t be racking up {more} debt. Growing debt creates extreme financial anxiety. I know this from past experience. It’s not fun!

How much should you save in your emergency savings account? That depends on where you are on your financial journey. For some, saving that first $1,000 is the goal to hit. For others, it would take more than that to cover an unexpected expense. It might be $3,000 or $5,000. Whatever the amount (whether $1,000, $3,000 or $5,000), creating your emergency savings fund will give you a feeling of accomplishment and security. Both are important feelings to foster on your journey to financial security.

Once you have a nice little financial cushion built up, you’ll become addicted to the idea of saving rather than spending. That’s a habit you definitely want to create and maintain from here on out.

 

Baby step #2 – Open a separate savings account for taxes.

If you are a business owner, 1099 independent contractor or otherwise self-employed, this is for you. I can’t tell you how often I hear stories of people owing money to the IRS that they can’t pay off because they got behind on their taxes. This creates a tremendous amount of financial anxiety. If this is you, I want you to head straight to your bank and open a separate savings account that is designated for taxes.

Every time you receive income, allocate twenty-five to thirty percent (of the gross) into your new tax savings account and DO NOT touch it unless it’s for paying your income taxes. This one step alone has spared many of my clients unnecessary sleepless nights.

By doing this one thing, you will reduce financial anxiety down to zero because now you will never be without the means to pay your taxes on time.

 

Baby step #3 – Track your expenses.

This is perhaps the number one financial habit most women tend to resist, initially. If you’ve never done it before – or if it’s been a long time since the last time you did it – it can seem overwhelming. But once you get into it, it’s not overwhelming at all. In fact…..

Listing your expenses is an eye-opening, empowering experience.

It really is as simple as listing everything you spend on a monthly basis. Be sure to list your periodic expenses, too. Such as auto insurance, taxes, auto repair, vacation, and gift-giving.

To start, go back over your last month’s credit card statement and your last month’s bank statement (for the account that you pay expenses out of).

Then list all your monthly and periodic expenses.

Here is a sample list of living expenses to get you started:

  • Mortgage or rent
  • Property taxes
  • Homeowner’s association dues
  • Homeowners or renter’s insurance
  • Automobile insurance
  • Health & life insurance premiums
  • Credit card payments
  • Gasoline
  • Groceries
  • Dining out
  • Recreation
  • Cable / cell phone / internet (list separately if paid separately)
  • Electric
  • Water
  • Garbage
  • Housekeeping
  • Pet food
  • Subscriptions
  • Out-of-pocket medical expenses
  • Dental expenses

The next step is to add up what you spend in each category for the month.

Notice what comes up for you when you look at your spending habits. Don’t judge yourself, or make it mean anything bad. Just notice. Then decide if what you’re spending your money on is really where you want it to go.

Are there any areas of spending that you could do without for a while? Are there any expenses that could be reduced or eliminated completely?

This step should help you find anywhere from fifty to three hundred dollars that you’re spending on stuff that doesn’t serve you any longer. That’s money that could go toward reducing debt or building savings. To start, repeat this process every month to keep your expenses in alignment with your spending plan.

A Client Success Story

A few years ago, I did this exercise with a client – a single man, with no dependents. He was totally shocked when he realized he was spending $1800 a month on eating out! That’s a lot of money to spend on food for one person!

The very next month, he happily reported that he spent only $900 on food. I asked him what changed for him. He replied, “Nothing. It was just seeing the dollar amount I was spending on food that suddenly made me realize what I was doing.”

Subsequently, he was able to control his spending where food was concerned. This one awareness alone gave him an extra $900 a month to contribute to retirement savings.

Tracking expenses can net the same result for you.

There you have it. Three baby steps to help you take charge of your finances. Why not give it a try?

 

Please note: I reserve the right to delete comments that are offensive or off-topic.

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