There are many reasons why people find themselves in financial trouble, but the solution is usually simple: discipline and budgeting. It’s hard to get back on track if you don’t know where you stand right now, though, so the first step to getting your finances in order this year is to figure out exactly where you stand. For tips on how to do that, check out these five ways to get your finances in order this year.
1) Be realistic about your income and expenses
Before you can get your finances in order, you have to be realistic about your income and expenses. If you earn $50,000 a year but spend $70,000, it’s going to be hard—and potentially counterproductive—to balance your budget. Set aside some time (it doesn’t have to be a full weekend) and see how much you spend each month on necessities such as housing and food.
2) Start paying off debt
If you’re having trouble managing your finances, begin by paying off debt. The sooner you tackle your debts, including student loans and credit card balances, the faster you can focus on saving and investing. Paying off debt not only frees up money that can be used for other things, it also gets you out of a cycle of compounding interest. If you don’t pay off debt when interest rates are low (as they are now), you’ll face higher interest costs as rates rise.
3) Track your spending
In order to get your finances in order, you’re going to need some solid data. It’s good practice to track all of your spending for a few months at least. You can use online tools like Mint or Quicken, or just make a spreadsheet on Google Drive. Whatever method you choose, it will help immensely when analyzing your current financial situation and deciding how to move forward.
4) Prioritize your savings goals
Before you save, think about what’s most important and why. Are you trying to finance a down payment on a house or car? Build an emergency fund? Start investing? All of these goals are good, but they should all be interrelated. For example, if saving for a down payment is your goal right now, focus on maxing out your 401(k) first. From there, build up an emergency fund by cutting back on expenses; that will free up more cash to allocate toward your goal.
5) Set up an emergency fund
Getting your finances together means taking some time at the beginning of each year to map out a financial plan. Getting your cash flow on track is one of several aspects of establishing solid money habits, and creating an emergency fund is a great way to start. Having money available in case something unexpected happens—like you lose your job or have an accident that keeps you from working—is essential for staying financially healthy. Creating an emergency fund will ensure that you’re prepared for whatever comes your way.
It’s OK to Ask for Help: The most important thing you can do when trying to get your finances in order is be realistic about where you are. If you don’t know how much money you spend every month, it’s easy for finances—and your stress levels—to spin out of control. Taking a deep breath and finding some peace with your situation is a great first step toward getting things under control.