“Yeah, so I think I have about £3k in the bank and maybe spend about err £2k per month and can maybe retire when I am 832 years old?”
Not knowing what the hell is going on with your finances can lead to some serious stress and worry.
Maybe you stick your head in the sand and tell yourself you’ll ‘get to it eventually’. Or, you tell yourself you ‘aren’t a maths person’ so can’t understand your finances.
Whichever excuse you tell yourself, the fact remains, you have no idea what is going on with your money.
You go to work for money so not knowing where it goes is like running on a treadmill every day for 8+ hours without knowing if you are getting fitter or not.
Money doesn’t have to be complicated.
There are lots of ways to simplify your finances so that it becomes less overwhelming and something you can finally get to grips with.
Make the decision NOW to finally get control of your money
Here is the ‘personal development mindset’ bit.
Unless you are going to decide to actually do this. Stop reading now.
Don’t keep reading blog posts or books or talking about how you are going to finally sort your money unless you are ACTUALLY GOING TO DO IT.
There has to be an attitude change, mind-shift or whatever else you want to call it for you to make the change.
Maya Angelou said it pretty well.
“If you don’t like something, change it. If you can’t change it, change your attitude.”
And while you’re at it, stop telling yourself you aren’t good at maths, don’t like excel or aren’t an organised person.
Decide that is doesn’t matter how you get there, you are going to get this shit sorted, once and for all.
If you can’t get on with this blog post, or my writing style, or how I’ve organised the information, don’t throw your toys out the pram and use at is an excuse not to sort your finances.
Go and find another site, or podcast or app or whatever does resonate with you, and use that instead. I won’t be offended (I might cry a little but I’ll be okay).
How to simplify your finances and get control of your money
As there is a lot of information here, I’ve broken it down into 12 sections so that you could either do it all now or tackle one a month.
I’m not trying to be patronising but it can take some time to get all your information together so trying to do it all in a weekend probably won’t work.
1. Know where you are at now
So, we need a line in the sand. Where are you now with your overall finances? Right this moment?
Time to calculate your net worth. No, wait! Don’t go! It’s not as boring as it sounds, promise.
Net worth is just a simple way of looking at what you own vs what you owe.
Net worth = what you own (assets) – Liabilities (what you owe).
If you want to read more about assets and liabilities then I highly recommend Rich Dad, Poor Dad by Robert Kiyosaki.
You could do it on a spreadsheet, on a piece of paper or find a website that has a net worth calculator.
- List the value of all your assets – what you own (home, checking account, savings account, investments, pension etc)
- List all of your liabilities – what you owe (student loan, mortgage, credit card debt, car loan etc.
- Minus your liabilities from your assets to get your net worth
2. Set a goal
This step is really important. You aren’t going to simplify your finances and get control of your money unless you have a really strong reason for doing it.
Here are some examples of goals:
- I want to reduce my expenses enough that I can afford to go part-time and spend more time with my kids
- I want to start investing as it’s starting to dawn on me that I need to start thinking about retirement, even if it is 30+ years away.
- I want to retire much earlier than the standard age so need to know how much I can save each month
- I want to quit my soul-bashing corporate job and start a business I love
Now, I want to talk about SMART goals quickly. A SMART goal, if you haven’t heard of it before it used to set goals that you are more likely to achieve.
If you’ve spent a long time in the corporate world, you have probably heard this said so many times that you want to bash someone over the head with a powerpoint presentation.
So instead of talking about SMART goals (again), we’ll just make a mad lib that covers all the bases.
I want to do (goal) by (date) which is achievable because (reason) and I’ll know when I’ve done it when (outcome).
- Decide on your goal
- Fill in the mad lib
3. Plan a monthly ‘get control of my money’ meeting
If you want to simplify your finances, you need to be doing it regularly. It isn’t going to work if you just do everything one and then forget about it.
I sit down once a month for an hour, update my net worth spreadsheet and track all my spending for the month before.
It gives me enormous peace of mind and clarity on what I do and don’t want to spend on for the following month.
If you and your partner have joint finances then plan the meeting together.
- Decide on your money meeting date each month
- Make an agenda or download the one I made for you
4. Educate yourself about money
Most things are stressful and overwhelming when we don’t fully understand them. It all looks much simpler once we do.
Learning something new is always daunting but then we look back a few months or years later and wonder what the problem was.
Sorting your finances can seem like an impossible task when you don’t understand what money is or does.
The best thing to do is to listen to podcasts, read books and personal finance blogs and get a really good feel for money as a whole.
It really doesn’t have to be dry and boring, there are some fantastic resources out there, you can check out my faves in this blog post.
Although it is specifically about financial independence (saving and investing enough money to retire extremely early), the information is incredibly relevant useful).
- Choose one money podcast to listen to
- Get one money book to read
- Sign up to one money blog
5. Know the difference between what you make and what you spend
Ah, this is the one which probably feels the most daunting. You probably know how much you make, but how much you spend? That can get lost in the ether, especially if you earn a decent wage.
If you are ever going to use money to make a change in your life, you need to be spending less than you earn.
So now is the time to see whether that is happening or not.
You can do this by looking at your bank statement, you should have a ‘total money in’ and ‘total money out’ figure or you can use an app which I mention in the next step.
Have a look over the last few months, write it down or plug it into a spreadsheet like one below.
You notice I’ve added something at the bottom of the sheet called ‘Profit Margin’. This is also sometimes called your ‘savings rate’.
The reason I’ve put this in is that it is much easier to see your progress if you use a %.
I’ll explain. Let’s say you saved $200 a month regularly and then one month you saved $300. Winner, right? But what about if you had earned $500 extra that month. Is only saving an extra $100 good? Perhaps not.
That is where the profit margin comes in, as it gives you a figure that takes into account how much you made that month, rather than just how much you saved.
Does that make sense? Not sure I explained that very well!
- Note down your income for the last 3-6 months
- Note down your total spending for the last 3-6 months
- Calculate the difference between the two.
6. Find out where your money goes
You can’t change what you don’t know. So it’s time to KNOW where your money goes.
You’ve got an idea of the total amount of money that leaves your bank account each month. But what about what you actually spend it on?
The best way to do this is to download bank statements for the last 3-6 months and consolidate everything into categories such as groceries, entertainment, bills etc.
Although this is a more time-consuming way, it does force you to examine exactly where you are spending. You really need some ‘WTF?! I spent HOW MUCH in Starbucks??’ moments to kick-start some changes.
Having said that, although excel is my best friend (not really, that would be weird, but I do love it), I realise it is not everyone’s cup of tea.
Luckily there are some great banking apps out there that will do the job for you. These differ by country so you can google ‘best banking apps + year + your country) to find the most suitable one.
For the US, Personal Capital and Mint seem the most popular. Annoyingly you can use them in the UK, although I have just discovered one called Money Hub which looks interesting.
- Categorise all of your spendings by month for the last 3-6 months
- Have a ‘WTF?!’ moment in one or more of the categories 😉
7. Reduce the biggest expenses first
If you want to get the biggest bang for your buck, tackle the biggest expenses first.
The highest expenses tend to be housing, food, bills, entertainment, and transport.
If you can reduce the interest rate on your mortgage, for example, you could be saving $£$ per month without that much effort.
You could also rent out a spare room on Airbnb, although not technically reducing your actual housing costs, you are reducing the amount you pay towards them.
Or, cycling to work instead of using the car. Or, meal planning and using supermarket discount vouchers.
Take each one at a time and research how you can save money on it, then do it!
- Choose the top 3 expenses and research ways to reduce them
- Once you have saved money on these expenses, choose the next 3 biggest
8. Decide what’s important to you on the smaller expenses
Once you have been through the largest expenses and found ways to reduce them, it’s time to tackle the smaller expenses.
The first thing to do is to decide what is important to you. And by this I mean, things that are more important to you than achieving your goal.
Keep these things but just see if there is a way to reduce the cost a bit.
Love the gym with a big L? Keep going. If you can find a way to reduce the cost by going at off-peak times then that’s a bonus.
Love reading books? That’s awesome. If you have a local library nearby then you can save a lot of money and *bonus* reduce the clutter in your home.
Now time for the things that aren’t important.
Old magazine subscriptions, buying clothes you never wear, gym memberships (if you don’t go).
Whatever won’t make you happier than achieving your goal needs to go.
- Go through all the smaller expenses and categorise them as ‘important’ or ‘not important’
- See if there is a way to reduce costs on the ‘important’ stuff
- Cut and cancel the unimportant stuff
9. Watch your emotions when you spend
You have been through and decided what is and isn’t important for you to spend on. However, it doesn’t take into account those sneaky emotions and thoughts that make us sabotage our goals.
Unless you have the willpower of steel, you will probably slip up at some point. The important thing to think about is why rather than beat yourself up about it.
If you bought some new shoes that you don’t need, was it because you had a shit day at work or someone posted a glowing photo on Insta-Lie that made you #hateyourlife?
If this happens, just recognize it for what it is. An emotion or a thought that you can choose not to react to. And take the shoes back 😉
- If you slip up, ask yourself why
10. Pay off debt or supercharge your savings
Just to recap:
- Your goal is set
- You know where your finances are at,
- You know what you spend
- Costs are reduced so you are living below your means.
Now it’s time to put the money in the gap between what you spend and what you earn to good use!
Save an emergency fund
Save a good few months of living expenses in an emergency fund, just in case something unexpected happens. I keep this in my current or checking account so that it is easily accessible in case of emergency.
Pay off debts (credit cards, student loans, car loans)
Get rid of anything that you are paying interest on as quickly as possible.
Invest in tax-advantaged accounts
Pensions (UK), ISAs (UK), 401k (US), ROTH IRAs (US) are all tax-advantaged accounts which mean you either pay into them with your before-tax income or you don’t pay tax on the interest you earn. A winner in both cases.
Save for a future goal
If you want to quit your job and start a business or go travelling or take a sabbatical, you can use your money to do these things. Just make sure you have covered the above 3 points first.
- Decide where your spare cash is going to go to help you achieve your goal
11. Automate everything
Now it’s time to simplify the process of paying bills and saving money!
You can set all credit card payments, bill payments and savings to come out of your account automatically each month which means you don’t have to think about it.
Some companies allow you to choose the date your direct debit comes out which makes it easier when managing the flow of money in and out of your account.
- Make a list of everything you pay or do manually each month
- Set up a direct debit or standing order for everything.
12. Clear up the clutter
Last step! Get rid of all the money clutter.
- Close old bank accounts.
- Consolidate accounts into one – if you have more than one checking account and you don’t need to, just transfer it all to the one with the best interest rates or benefits.
- Get paperless billing – you can do this with you Online Banking so that you don’t get sent paper statements every month.
- Cut up credit cards – if you have credit card debt, the best way to stop spending on them is to cut them up……
- File everything you need to keep in folders or a cabinet
- Plan in a day to clear up the clutter
The key to simplifying your finances is to finally understand them.
- Know what you want to achieve
- Be clear about where you are right now
- Feel confident in what you spend and why
- Know how to reduce costs
- Know where your savings will go
- Have a monthly review to stay on track
If it takes 12 months for you understand and simplify your finances, so be it. Just know that each month, you will have a bit more knowledge and a bit more control over your money.
So, there you go! I hope that helped to simplify things!
More money posts to help you!
- 12 life-changing money lessons I learned in my 30s
- Top 11 financial goals you need to achieve in your 30s
- 10 Ways To Save Money By Going Plastic Free
- Insider tips on using an escape fund to quit your job and start a business!
- 44 free tools to start an online business with no money
- How I saved £30k in one year and quit my job
- Minimalism: What is it and should I do it?
- Why You Need Track Your Spending If You Want To Change Your Life