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6 Steps to Overhaul Your Personal Finances

by Chris Poindexter

If you’ve reached the conclusion that you need to get a grip on your finances, or maybe you made an effort to do so in the past that fell short, then you’ve come to the right place. Basketball coaches will tell you that if team members learn the process of shooting free throws, the results will take care of themselves. If you want to be good at the foul line, don’t work on shooting free throws — instead focus on perfecting the individual steps.

When it comes to your personal finances the same theory applies. Don’t work on your finances; work on the process for managing your finances, and the results will follow. Do a good job implementing these six steps and put budget woes behind you permanently.

Visualize Your Cash Flow

To make good budgeting decisions, you first need good data. When you have that good data, the next step is visualizing those numbers in a way that helps you chart your progress. Spreadsheets are marvelous inventions, and there’s no substitute for tracking every dime that comes in and goes out. Most online banking systems offer a way to export your ledger, usually as a CSV file. Those can be imported into your spreadsheet to help minimize the amount of manual data entry you have to do. Once you have a current data snapshot of your budget, keeping it current takes only a few minutes a day. After that, start experimenting with the charts and graphing functions to help zero in on which spending categories are giving you problems, and to track your debts.

Switch to Zero-Based Budgeting

Most people engage in traditional budgeting, where old expenditures are automatically approved and only the new ones get scrutiny. Zero-based budgeting, also called zero-sum budgeting, starts with a zero budget every month and justifies every budget item added back in for that month. While it may seem tedious to justify a mortgage and car payment every month, doing so reinforces the impact those recurring monthly payments have on your budget. After three or four months of justifying your cable bill, you’ll be motivated to explore alternatives. Three or four years of justifying car payments every month will have you thinking about paying cash for a less expensive car. Zero-based budgeting forces you to think about that club membership every 30 days and to consider alternatives.

Pay With Cash

Credit cards don’t help you budget — they’re only good for shifting the time frame of when you pay for an item. Paying with cash or a debit card forces you to live within the constraints of your budget. While this is usually where someone jumps in about the fabulous things they do with credit card reward points, just remember that 1% is $1 out of every $100 you spend and even a generous 2% is only $2 out of every $100. If you’re good about shaving expenses, then even that meager refund is a diminishing return.

Tame Your Food Bill

Without careful monitoring, one of the most common expenses to grow out of control is your food bill. Grocery stores don’t stay in business by accident. They know when beef prices go up, people switch to chicken. Grocery stores are constantly adjusting prices up and down to keep shoppers guessing. So your grocery bill becomes a constant game of tug-o-war between your wallet and your grocer’s bottom line. The more consistency you can maintain in your grocery list, the more successful you’ll be at finding the lowest cost alternatives for your food budget.

Minimize Waste and Loss

While this seems obvious, it’s not always easy to see waste when it comes to your finances. Loss is inevitable, but it’s a lot easier to recover from cheap mistakes. Traffic tickets are a prime example of an easily avoidable financial loss. Leave a little earlier, take your time, drive the speed limit, and conduct yourself like a sane person behind the wheel. That will minimize loss in the form of tickets, and also hold down your insurance rates. The same type of thinking applies to bank fees, late payment fees on debts, increases in insurance rates, and dozens of other niggling fines and fees that are part of the modern world.

Get in Shape Physically

This may seem like an odd item to include in a financial column, but one of the best things you can do for your budget is getting in shape physically. If you’re healthy, you’ll spend less on doctor co-pays, and have a better chance of avoiding being on expensive medications long term. It’s also obvious that if you’re out exercising during your free time, you won’t be tempted to eat, or spend money on other forms of entertainment. Taking your bike to work just two or three days a week is a double bonus that makes you healthier — and slashes your expenses on gas, parking, and vehicle maintenance.

If you’ve had trouble budgeting in the past, then take a look at your process. When the process becomes your focus, your finances will fall into line.

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