Of all the things that steal my peace, money is pretty high on the list. In fact, trying to figure out how to pay for stuff takes up more of my mental space than I would like to admit. One of the biggest problems in managing finances is debt. It is so easy to get into and so difficult to get out of. Debt is probably responsible for more sleepless nights, broken marriages, and gray hairs than we could count.
In today’s modern world, borrowing money has become a veritable necessity as we strive to get an education, buy a house, and own a car. These three major expenditures are pillars in the midst of many other expenses that can easily add to our debt list. Medical bills, unexpected repairs, and job losses can easily and quickly break the proverbial bank. Even if we are generally responsible with our money, debt has a way of sneaking up on us and taking over.
Finding peace in our finances means taking back control, managing our debt, and putting our money in order. When a mountain of debt looms in front of us, the task of taming it can seem daunting, but a systematic approach can help us achieve peace. The key to success is strategic planning and small victories. If you are ready to cultivate peace in your finances, there are a few basic steps to get started. Some may seem counter-intuitive at first, but if you follow them, your money will follow you.
Our first instinct when money is tight is usually to look for ways to make more money. Clearly, getting a raise or a higher-paying job can add more margin to your monthly budget. However, there is a flaw in this approach that often derails good intentions. Most people who make more money simply spend more money too. For this reason, we must address our spending before dealing with our income.
Tracking spending is an important first step to managing our money. (Check out the book Your Money or Your Life by Vicki Robin for more on the importance of tracking your spending.) We must know where our money is going. Take at least a full month or even longer to track every penny of your money. You can write it down in a notebook or use software like Mint.com to record every transaction for the month. From paying bills to eating dinner out, it is important to know what your money is doing for you.
Once you know where your money is going, it is time to ask the question “Why?” We can’t change our spending habits if we don’t know what they are and why we have them. For instance, why did you buy the magazine in the checkout line or the new tool from the hardware store? Take a look at your purchases and trace them to deeper values, needs, or habits in order to understand why you spend money on particular items.
Next, it is time to take stock of what your budget looks like. If you don’t have a budget, you can create a simple sheet that itemizes your income and your monthly expenses. Since you have tracked your spending, you should be able to record approximately how much you spend each month on housing, transportation, utilities, food, insurance, and more. Make as many categories for spending as you need to account for your money (for instance, in addition to the basics, I have separate categories for educational expenses, medical bills, charitable donations, and savings).
Once your income and expenses have been balanced, you can easily see how much margin extra money you have each month or what the deficit is. For a few years, my husband and I had a $1000 deficit each month, and we were already living frugally so there weren’t any expenses we could cut. Each month my husband kept track of the deficit so we could work to make up the difference. When our income finally exceeded our expenses, we were able to track the extra and put it toward specific financial goals.
As you review your income and expenses, begin thinking about what you want your finances to look like. Do you want to pay off debt? Save for the future? Make a major purchase? Give more to charity? Answering these questions will give you a foundation for outlining your financial goals. Answer them individually, then, if you are married, discuss your answers with your spouse and begin writing down what you want from your money.
Once you know what you want, you can put a plan in place to get there. Like planning a road trip, being strategic about your money requires a destination and a map to get you there. Sometimes we can make a plan on our own and sometimes it is best to enlist the help of a financial planner. Either way, the goal is to come up with a realistic “map” for using your money to achieve the financial outlook you want.
As Thomas Stanley and William Danko demonstrated in their book The Millionaire Next Door, creating wealth and finding peace in your finances is not about how much money you make; it’s about what you do with the money you have. Making a plan for your money restores peace of mind and infuses your spending with purpose.
Tell us what your money map looks like! What is one financial goal you can’t wait to achieve? Do you have a plan to make it happen?