Are you a responsible professional, but sometimes you feel as if your finances are off doing their own thing? Do you often wonder where your money is going but you don’t know where to start?
If so, you’re not alone – and you need to read on.
Putting good money management skills into place can be both challenging and overwhelming if you’ve never given it a second thought before. But if you want to build serious wealth, it’s crucial to get organized, understand your finances, and know precisely where your money is going. This is where budgeting comes in.
Take these six steps to get on the right track and start doing more with your money. We will cover Steps 1 and 2 in this post, and move on to Steps 3 through 6 next week.
Step One: See Where Your Money is Going
The wonderful world of technology has made it much easier and (dare I say) fun to see where your money is going every month. There are two different ways you could go.
If you want to work in collaboration with a financial planner, check out XY Planning Network. Through this organization, you can find a CFP® professional who will work with you to evaluate your cash flow (i.e. what’s coming in and what’s going out).
If you are looking to try it out on your own, look at Mint.com or YNAB. Both these tools allow you to sync up your bank checking, savings, credit cards, and other financial accounts to provide an honest, big-picture overview of where you’re spending now.
Once you go through the steps listed below, you can go back in and set up your new budget to track your finances moving forward.
Step Two: Is That Where Your Money Should Be Going?
Now you know where the money has been going. Are there things that surprised you, or that you knew about, but were trying to avoid?
I often hear clients tell me that they had no idea they were spending that much on eating out, shopping, fitness supplements, and other random (and often frivolous) things and places. Evaluating where your money is actually going versus where it should be going is often enlightening.
Having trouble determining what might be a problem? Consider these common red flags:
- Is there lingering credit card debt that sticks with you month after month?
- Do you have a savings account that you contribute to, but find that your contributions seem to somehow end back up in your checking account (where they’re promptly spent)?
- Do you usually travel every year to see family or go on vacation and end up putting it on a credit card to pay it off over time?
- Does something always come up that you didn’t account for?
If you could answer “yes” to any of the above, it’s likely your money is leaking out and being spent on things that won’t further you to your financial goals or build your wealth.
So, What Now?
Next week, we will cover Steps 3 through 6, which include how to plug the leaks in your budget, how to practice more mindful spending, and how to put your money to work in more productive ways.