I remember when I didn’t have control of our family’s money. I remember it well…unfortunately. We were $24,000 in consumer debt. We had no emergency fund, no investments and no savings whatsoever. I had used most of my wife’s savings to buy a new drum set (because that’s what responsible husbands do, right?).
My wife had been through Dave Ramsey’s Financial Peace course and honestly, she knew quite a bit more than I knew about money, especially managing it (well, and everything else related to money). She gave her input, but why would I listen? I was in my early 20s and I already had everything figured out. I didn’t need her input – I knew what I was doing. Yeah…
I’m not going to drown you in the tears of my past wrongdoings, but I am going to tell you why you need to take control, what happens if you don’t (from personal experience) and how to take control right now. Yes, today is the day that you will take control of your finances. Today is the day that you will change the course of your financial life. Sounds cheesy, right? Well sometimes the truth comes with a little cheese sprinkled on top, but seriously, you can change your financial future if you start today. Let’s do this…
Why Take Control?
I assume you want to take control of your finances and you don’t really need a “why”, but if you still want one, there are many. Taking control of your money doesn’t mean that you’re greedy or selfish. It’s actually quite the opposite. Here’s the thing:
- If you don’t control your money, your money will control you. That’s the simple truth. Someone or something is in control of your money right now. If you don’t feel like it’s you, it’s probably your money. Actually, you may be a slave to your money without even realizing it.
- Money is a great servant and a terrible master. Dave Ramsey says this all the time, because it’s the truth. Money shouldn’t run your life; money is there to make sure you are able to run your own life. If you have it backwards, you’ll spend your entire life as a slave to money.
- Nobody is going to do this for you. Despite what a broker, money manager or anyone else in a fancy suit tells you, you have to do this for yourself. Sure, money managers can be great for helping with investments, but you need to have your finances in order before you trust someone else with your money.
What Happens if You Don’t Take Control?
Initially, if you don’t take control of your money, you know what happens? Absolutely nothing. It’s not like some huge alarm goes off that forces you to take control. It’s a trickle effect over years and years…and it takes about that long to get your finances back on track if you let them go. If you blow your budget one month, you’re likely to see no change in your overall finances. If you consistently blow your budget every single month, you’ll find yourself in some serious financial heartache over the coming years.
- Don’t tell yourself you’ll take control later. This is a big one. The old “well I guess I’ll start next year” syndrome could by crippling your finances. You have got to start this now – preferably today. Think about how many times you told yourself you were going to do something about it and you didn’t. I promise, if you start today and take the advice I’m about to give you, you will control your own finances, but if you never get started, it can never happen.
- Now I know you’re really here for the “how”. You’re ready to do this and you want to do it today. So how do you get started? It’s easy in practice, but it can be difficult in discipline. You’ve got to stay disciplined. It doesn’t even take that much discipline, but you’ve got to stick with it. Can you promise me right now that you will stick with this? This is for you and your family. So how do you start? Here’s how…
How to Take Control
I first decided to take control of my finances because I was angry. I realized that our finances were controlling the direction of our family. We couldn’t do the things we wanted to do because our finances were holding us back. Then one day it really hit me. Here’s what happened…
I had finally decided to fulfill my life-long dream of joining the United States Air Force. I walked into the recruiter’s office and explained how it had been a dream of mine and I was ready to do it. My smile quickly faded as I found out why I couldn’t join. Well for one, I was too fat (we’re being honest here). Second off, we were too broke – more specifically, our debt to income ratio was too high for the Air Force’s standards.
That day pretty much did it. That’s when the process began. First, I started listening to my wife (husbands, this is one of the best decisions you will ever make – they are smarter than we are and that’s science). Second, I started reading every book I could find on personal finances. Third, I started working out to become…not fat. Two years later we were completely debt free and I had lost 50 pounds. I met all the standards and was able to fulfill my dream as I signed the papers to join the United States Air Force.
That’s my story. Now let’s talk about your story. Here are the 5 steps you need to take to get your finances in order (if you’re interested in losing weight too, I am currently on a plan to lose even more weight and I’ll be writing about it soon – you’re welcome):
- Step 1: Track your spending. The most important part of getting financially real is knowing where your money is going. How can we be good stewards of our money and expect to be blessed financially if we don’t know where it’s going? It’s simply our responsibility as adults to know. If you’ve never done this before, all you have to do is keep your receipts and write down every single expense for a few months. You’ll get an idea of where you money is going, where you need to cut back and how to formulate an accurate budget.
- Step 2: Automate your finances. You can start this right away. Write down every reoccurring expense (i.e. bills, payments, giving, savings, investments, etc.). Now you’ll begin the automation process. Bills can generally be automated through online banking. Physical checks (such as a rent check) can be automated through online banking as well by setting a reoccurring check to be paid to a specific person or company. Investments can usually be set up to automatically withdrawal through the investment company or through your bank. Giving can often be automated through the church or organization you give to – if not, you can simply send the check through online banking automatically.
- Step 3: Set your budget. Now that your reoccurring expenses are automatic, you’re just down to budgeting your other expenses. You can set a budget immediately and then adjust based on what you notice while tracking your spending. Cut out the things that are costing you too much and the things you don’t need, then go from there. Check out the tools below to help you do it.
- Step 4: Eliminate your debt. Before you move on to step 5, you’ll want to eliminate your debt. At minimum, you need to eliminate your high-interest consumer debt. As far as mortgages, student loans or anything with a really low interest rate, that doesn’t necessarily need to be eliminated before Step 5, but you need to have a plan in place to pay as little interest as possible.For example, after you eliminate your consumer debt, you can cut down the usual 10-year term length on your student loans and lower your interest rate by consolidating them. It’s simply a numbers game. It doesn’t make sense to invest with a 10% return, while you’re paying 27% on your consumer debt. It’s simply a numbers game. It doesn’t make sense to invest with a 10% return, while you’re paying 27% on your consumer debt.
- Step 5: Create wealth. If your employer offers a match in your retirement account, invest enough to get the match. That’s free money – a 100% ROI! And you should be investing that money, as long as you can afford it, whether you’re paying off debt or not (unless your paying over 100% interest on one of your debts and in that case, you got a raw deal). Once all your high-interest debt is paid off, you’re ready to start some seriously wealth building. You have a few options here – if your company retirement plan has a good selection of low-cost index funds, you might as well max out that plan. Once you’ve maxed that out, open an IRA and max it out for the year. After that point, you can pay off your remaining debt or even open a regular taxable account if your out of ideas on how to spend your money – that’s a great problem to have.
Everything You Need to Get Started
I just covered an entire lifetime in one article, so you may have a few questions. I’ve put together a structured list of tools to guide you through this entire process (step by step!) if you want to take control of your finances. The best part is that it’s all free information! Isn’t the internet great? Go through these articles and you’ll have the resources you need to take control of your finances right now:
Step 1: Track Your Spending
- Goodbudget – A free budgeting tool (web and app interface) that allows you to easily enter in every purchase.
- Personal Capital – A free tool that links all your accounts together and puts your credit and debit purchases in one spot for your to easily have an overview of you spending and track it easily.
Step 2: Automate Your Finances
- The Automatic Budget – How to set your budget to automatic.
- The Psychology of Automation – An amazing article on automating your finances from Tim Ferriss & Ramit Sethi.
Step 3: Set Your Budget
- Goodbudget – I’ve already mentioned it, but I think it’s the best free manual budgeting tool.
- The Ultimate Quick-Guide to Budgeting Tools – A guide with all the top budgeting tools to choose from.
- Budget Series – A detailed 3-part series to creating your budget from start to finish.
- The 5 Minute Budget – A budget for people who hate budgets (but not as detailed).
- The Envelope Budget – A quick guide to how the envelope budgeting system works.
Step 4: Eliminate Your Debt
- The Debt Snowball Vs. The Debt Avalanche – Figure out which is best for you.
- 6 Take-Action Steps to Get Out of Credit Card Debt – How to dump your high-interest credit card debt quickly.
- 29 Ways to Make Extra Money – Smart ways to get the extra money you need to pay off your debt.
Step 5: Create Wealth
- A Beginner’s Guide to Investing – If you’re new to investing, start here.
- The Most Important Article You’ll Ever Read on Investing – Read this next – the title says it all.
- Retirement 101 – How and when to start contributing to your retirement.
- 3 Ways to Start Investing for $100 or Less – If you’re starting small, this article is for you.
- How to Build a Rock Solid Retirement Portfolio – This is how you will get to your end goal.
- The Slight Edge and How it Can Make You Rich – A look into what can happen for your finances if you start today.
Head over to my investing page for even more free investing education.
Now you have a proven plan for taking control. The only thing stopping you from controlling your finances is you. There are all kinds of excuses out there and some of them are actually pretty good, but at the end of the day, they are still excuses – just because they’re true, doesn’t mean that using them will help you. You’ve got to make the decision to do this, regardless of your situation.
Are you ready to take control of your finances? Are you ready to get financially real? Let me know in the comments!