Five Steps to Improve Your Money Health
If taking control of your money is one major way that you’d like improve your life – you’re not alone.
I meet many people who would love to have financial health, yet they’re often so blocked by fear, shame or overwhelm that they never get started.
Money has long been an interest of mine – even before I became a coach – because I’ve noticed that the better I get at managing my money, the more peace and personal freedom I have to pursue my most important goals and live my life by my values.
Today I want to offer some of the simplest steps and best resources that I’ve found for improving financial health.
I’m a huge fan of DIY money management. These are easy actions you can take to feel more empowered about your money even before you need to venture into the more complicated world of stocks and investments.
Disclaimer: I’m not a financial planner, accountant or banker. If you need financial advice, please seek a professional.
Five simple steps to improve your money health
Step 1: Find out how much you have
It’s surprising how few people know exactly how much money they have. How can you make any decisions about where to go next if you don’t know where you stand today?
Set aside an afternoon to collect all your statements and account logins and begin tallying up how much money you have and owe. This step might feel both tedious and scary but it has rewards.
When people complete this task, I see how they experience a greater sense of control and empowerment. Now they know where they stand, and no longer have to live with a big shadowy unknown hanging over their heads. They can face the facts and do something about it. You can too.
Tools to help you compile your net worth:
This is a free online application where you can link all your bank accounts, credit cards and investment accounts, and then see all their balances and transactions all in one place. Mint also allows you to set up a basic budget and track your spending against it. I’ve personally used Mint for many years.
This was described as “Mint on steroids” on Budgets are Sexy, one of my favorite money blogs. I haven’t used Personal Capital, but it’s also free and is said to have even better tools and charts for tracking your investments and net worth.
Old-School Excel Spreadsheet
This is a net worth spreadsheet template provided by Budgets are Sexy. The resident blogger there, the anonymous “J. Money,” publishes his net worth every month in his aim to become a millionaire.
Step 2: Track how much you spend for at least one month
This step requires patience and diligence. For one month, track all your expenses and purchases so you can begin to see how much you actually spend and where.
If you pay purely in plastic (debit or credit cards):
Download your bank and credit card transactions – Most accounts now allow you to export all your transactions into an Excel spreadsheet. My credit union, for example, even offers the ability to categorize expenses and then charts where my spending went.
If you use both cash and plastic:
Mint.com – Again, you can link your accounts here, see all your transactions, and categorize expenses. When you use cash, you’ll need to enter the transaction manually online or via the free phone app.
You Need a Budget (YNAB) – This is my favorite money software. Like Mint, it also syncs with your accounts and offers a phone app. What makes it different is its principle of “giving every dollar a job.” YNAB has you tally how much money you have at the start of a month and then allocate it toward all your upcoming expenses and savings goals. YNAB has a steeper learning curve than Mint and currently costs $50/year. Yet they offer videos, free classes and a lively community. People who master YNAB swear by it. Personally it gave me the ability to stretch my limited start-up funds in my first year of business and thrive! Now my husband and I use it to manage our joint budget.
Excel spreadsheet or paper/pencil – At the end of each day, write down all the things you purchased. If you’re single and disciplined about keeping receipts, maybe this will work. Though if you have a partner or family, good luck!
Step 3: Stop and assess where you’re at, and where you want to go
Now that you know how much money you have, and how much you generally spend each month, review the results.
Where are you doing well?
Where are you not doing so well?
At this juncture, there are four typical areas for improvement:
1. Eliminating debt;
2. Spending less or smarter;
3. Earning more; and/or
4. Saving more for retirement
Step 4: Get more information
By now, you might be tempted to jump straight to solutions.
For example, you’re most worried about retirement, so you decide to start maxing out your contributions to your employer-matched retirement fund. Yet you’re still carrying high-interest credit card debt. This move might actually set you back – why not sound it out first?
Before you act, I recommend getting more information and ideas. There are so many free or cheap, wonderful resources out there, there’s no reason not to take advantage of them. Below is a short list of my favorites.
Step-by-step approaches to eliminating debt and growing wealth
Author and radio show host Dave Ramsey offers seven steps to take control of your money in his book The Total Money Makeover. His first two steps? 1) Save a $1000 emergency fund. 2) Pay down all debt except for your mortgage. Dave’s radio persona might be too over-the-top for some, but many people have had huge success with his methods.
Author and television host Suze Orman has her own 9 Steps to Financial Freedom, as well as books specifically targeted to women, and the “Young, Fabulous and Broke.” I really appreciate her super specific, practical advice (like how long to keep bank statements).
For expanding or changing your money mindset
The Millionaire Next Door by Thomas J. Stanley and William D. Danko. After 20 years of research, the authors summarize the seven traits that show up repeatedly in the lives and habits of millionaires. Some, like “live below your means” are common sense, while others, like always buying a used car, rather than a new one, are more surprising.
Your Money or Your Life by Vicki Robin and Joe Dominguez with Monique Tilford. This book challenges people to truly calculate the cost of how much they work – and if it really adds up to the life that they want to live.
Why Women Earn Less, by Mikelann R. Valterra. This book is a bit dated (published in 2004), but offers some great mindset exercises and stories for women who are under-earning in their careers.
Note: If you’ve been under-earning, take even the simplest step of visiting your local library or bookstore for any book on salary negotiation that appeals to you. There are dozens. Then try out what you’ve learned in your next job interview or annual review. Becoming even slightly more skilled in negotiation can result in earning some of the easiest money you’ve ever made: hundreds or thousands of dollars that you might have otherwise left on the table. Wow, wouldn’t that feel fantastic?!
Step 5: Create your financial vision and goals – and get support
After absorbing some of this new information, take some time to write down your priorities and next actions. Also consider your larger vision of how you’d like to live your financial life. A few questions to consider:
- What kind of life would you like your money to support?
- What changes will you need to make to get there?
- What values have you discovered are most important to you when it comes to money?
- What bad habits or obstacles are in your way? How will you mitigate or tackle them?
As you make your way, I also recommend finding support in like-minded people. More and more I notice how much our environment and the people around us influence our spending.
When you change your money habits, you’ll likely find that you’ll need to adjust who you spend your time with, what you do, and where. Maybe it won’t work for you anymore to go out every weekend with friends who always want to try the hottest new restaurant. Maybe you decide to move out of the big city, where the rent is sky-high and you’re always going out or shopping.
Making these changes can be difficult, but the benefit is living a life that really suits you and your goals.
Plus, you'll find that there are others out there who think similarly to you.
In recent years, I’ve found online communities to be one of the best places for like-minded support. (Hooray for the internet!) Some of these include:
Budgets are Sexy
Mr. Money Mustache
YNAB (You Need a Budget) Fans! Facebook group
The true rewards for this up-front work
I started my adult life with a mix of both good and bad money habits. I was lucky to come from a family that was thrifty, advocated saving and avoiding debt.
I also made plenty of mistakes. I’ve gone through periods of my life where I spent money on frivolous things rather than priorities, and I also didn’t negotiate my salary well (or at all) in some of my first jobs.
There are still plenty of areas where I can improve! I’m still on this journey too.
My interest in money really peaked in the last five years, when I made a more conscientious effort to manage my money well, and then apply it toward my most meaningful goals. First, that empowered me to use a portion of my savings to take a year-long sabbatical. Then I directed another chunk of cash to start my own business and move abroad.
We create an opportunity for ourselves to do the things we most desire in life when we are smart and conscientious about money. In return for some upfront work around our habits, choices, values, and fears, there is a big pay-off.
Did I miss one of your favorite money gurus or resources? Leave me a message below!