Get Your Finances Under Control – Step 1: Recognition
The good news is you already know the first step to getting your finances under control. Recognizing your finances are out of control and choosing to take steps to solve the problem is the first and most critical step of fixing your financial situation.
The ability to effectively manage your finances has little to do with your ability to understand stocks, how to calculate interest rates, understand inflation etc. While these items are helpful, understanding yourself is the most important part. Financial problems are generally related to your behavior and your ability to control it.
Signs that may indicate your finances are out of control:
- Spending more than you make
- Frequent fights or disagreements with your significant other over finances
- Falling behind on bills or loan payments
- Living paycheck to paycheck with little to no savings
- Bouncing checks or frequent overdrafts
- Having to use credit cards or borrow money to cover unexpected expenses
- Using credit cards to purchase Life Basics.
- Constant stress and anxiety about being able to pay your bills and cover your expenses
There are many others of course, but these are just a few of the ones that typically jump out at people. These also happen to be some of the main ones that I have experienced in the past. Of course until my Major Life Crisis occurred, I knew we had issues, I just chose to ignore the problem.
In order to begin getting control of your finances, you have to look at yourself in the mirror and have to courage to say I am the problem or we are the problem. People want to blame everyone else for their financial problems, and while external circumstances can certainly impact your life and cause unexpected financial issues, you are the real problem. How you handle your finances and how you handle these unexpected impacts are what drives you towards financial success or not.
Once you have made this recognition, and have made a commitment to yourself to get control of your finances, the rest of the steps are just common sense and are very easy to follow from a practical standpoint. Again, dealing with your behavior through the process is the most difficult part.
Dave Ramsey has a great way of describing people who are living a life outside of financial control: Living in the Land of Stupid. While this is a very in your face, attention grabbing statement, if you step back, it’s really quit true. I lived in the land of stupid for a very long time. I knew I was, knew I wasn’t making good choices, but continued to do it anyway.
So, what do we do now? Walk to the closest mirror in your home by yourself or with your significant other. Look at yourself or yourselves in the mirror and make a commitment to stop living in the Land of Stupid and commit to yourself and if applicable your significant other that you are now moving, moving to the land on financial control, moving to where all of the other wealthy people live. Moving to the land where God wants you to be.
One important note here for couples that I’d like to mention. It’s important for you to make this commitment together. One person cannot do it alone. A couple’s money is a couples money, it’s not yours and hers, it’s not the husband’s, it’s not the wife’s, but both of yours.
Going forward there should be no “I” but only “we”. “We” made mistakes, “we” are going to budget, “we” are going to start saving, “we” are going to get out off debt.
Forget mistakes of the past and move forward on this path to financial control together. Don’t even bring up things from the past (by the way, this is called forgiveness). Making financial decisions together will hold you accountable. My wife and I have agreed to not make any significant purchases without consulting the other first. We have to both agree, and if not we don’t make the purchase. The only exception to this rule is regarding our own personal spending amounts that are allocated in our budget. With those, we can each do whatever we would like with that money*. This is a great way to maintain financial accountability to each other, but at the same time avoid taking away that feeling of personal freedom.
The next step involves the question Now that we’re here, where do we want to go? Getting control of your finances involves defining your goals and determining what is important to you. These goals will serve as the driving force for staying on track, and will keep you from moving back to the Land of Stupid.
The next article in this series is Step 2 - Setting Your Financial Goals
* Ok, so I say this, but it’s not 100% accurate. I really want a motorcycle, but she won’t let me get one. Now, in her defense, she’s keeping me from taking a vacation in the land of stupid. Guys, listen to your wives, their risk meters are far more sensitive than ours, and will often keep us out of a lot of trouble!