Disclaimer: I am not a professional financial advisor. I am just sharing what works for me in terms of personal finance.
Personal finance can seem overwhelming. Just thinking of those numbers and columns can make people run the other way. Most of the time, this thought of having a big and daunting responsibility can be terrifying, that’s why they don’t even bother to look at their financial situation anymore. However, the longer that you look away and sweep it under the rug, the bigger responsibility you’ll inevitably have to face in the future.
I have listed 4 steps on how to start sorting your finances. If personal finance looks like such a huge thing to do, then just start with these simple steps. Again, I’m just sharing what worked for me. I am, by no means, a financial professional.
1.Assess your current situation
You may think of words such as “I’m drowning in debt” or “I don’t have any any money”, but you can’t properly assess your situation that way. For this step, you will need to see actual amounts. There’s no getting around it, you will need to list down all bank accounts, investments (if any) and debts as well. You can use any tool you like, but I prefer using an Excel spreadsheet. Once you lay it all out, you will have a clearer picture of where you’re at financially, and how much debt you’d need to deal with. You may feel frustrated and disappointed, even angry, when you see how much debt you need to pay, or how little money is coming in, but don’t let it discourage you. In order to sort your finances, you need to know exactly what you’re up against.
Below is a very simple template that you can follow. Put each bank account, investment, and debt in its own column and indicate the current balance. That is your starting point.
As you go along, you can fill in how much you used up for expenses/payments and how much money came in every month. And as you make progress, you’ll have that satisfying feeling when you can clearly see your assets increasing and your loans getting smaller 😊
2. Track your expenses
I know, I know… This can be tedious. I mean, who has time to list down how much he paid for his morning coffee, every single day? But this step is crucial to see how much money is going out of your pocket, and where it goes. After a few weeks of doing this, review your expenses. You’ll be surprised at how much your groceries and takeaways cost. By looking at your list, you can ask yourself where you can cut back on your expenses – transportation, food, clothes, make-up?
3. Brainstorm and do it
Here comes the more “creative” part. Think of the different ways to 1.) lessen expenses and/or 2.) increase money coming in. Here are just a few things that come to mind:
- DIY some home and beauty products
- Shop from your pantry and cook more – this lessens food waste as well
- Learn to make good coffee at home
- Sun-dry your clothes
- Sell unused stuff
- Look for a side hustle
- Sign-up for paid surveys
These are just a few ideas, and you don’t even have to do them all. Just pick a couple and DO IT. Remember, ideas are nothing without corresponding action.
4. Figure out which debt to eliminate first (if there are multiple), and start dealing with it
There are many methods of identifying which debt to tackle first, and there are more informative resources out there other than this blog. But with all the brainstorming and doing that you did in Step 3, you’d be able to have more money to pay for your loans. Debt can really weigh you down, but small baby steps, if done consistently, will go a long way.
Personal finance isn’t just a one-time activity. Again, the steps above are just the start. It takes a lot of time and patience. But the peace of mind that you get when you see your cash flow getting healthier is priceless. Good luck! 👍