Part 1

The 4 Things You Need to Know Before Fixing Your Finances

I got made redundant in 2008 when the economy crashed. I was in my mid 20s and renting an apartment with my boyfriend. Neither of us had any savings and it wasn’t long before we were struggling to pay bills and rent. For some reason, it wasn’t the letters with all the red type and capital letters that got to me the most. The worst moment was actually in a supermarket, trying to buy dinner and some cat food. I got to the checkout and realized too late that I didn’t have enough cash for both things – and my bank cards were useless at this point. With a red face, I put back the pasta bake and just bought the can of cat food (well, I couldn’t let the cat suffer for my mistakes!)

Things improved after this, bit by bit. I got another job, paid off the debts that had started piling up while I was unemployed, and began budgeting so I could start a savings account. If anything unexpected happened, I’d be prepared this time!

Fast-forward nine years and I’m now giving regular money management advice to a friend. Matt told me he often found himself lying awake at night worrying about debt. He was spending a little more than he earned each month and the numbers were creeping further and further into the red. He phoned me to talk about it, and I decided to share with him how I got control of my finances.

It didn’t happen all in one go. I spent a long time struggling with motivation and lack of knowledge about personal finances – but I now have a healthy savings account and enjoy budgeting for vacations and treats alongside the essentials. I could have cut out several years of struggling if I’d had a friend to give me these four tips, though. Here’s what I told Matt on our first phone call – and what I would tell my younger self, if I could time-travel:

1. First, Find Your Purpose

Why do you want to get on top of your finances? ‘Because I want to have more money’ sounds pretty straightforward, but you’ll need a stronger motivation to keep you going when things get tough. The more specific, the better! ‘I want to move out of rented accommodation and put down a deposit on a house near my sister’ is going to keep you way more focused than ‘I want to move out of this dump.’ Plus, it’s far more motivating to work towards something than run away from something. ‘I want to pay off my debts so I can take that trip to Rome I’ve been dreaming about for ten years’ is much stronger than ‘I want to stop feeling nauseous every time I log into my bank account’. The first thought cheers you on, while the other makes you want to stick your head back in the sand.

Pour yourself a coffee and note down some ideas. Then choose whichever you feel is your strongest – i.e. your most inspirational and specific – reason to work on your finances. Write it down and stick it to your bathroom mirror or the fridge door. You’ll see it every day and it will spark positive thought patterns with surprisingly powerful effects.

2. To Tackle the Problem, You Need to See the Problem

Trying to get on top of your finances without analyzing your outgoings is like trying to learn to swim by watching YouTube videos and practicing in your living room. You need to know exactly what you’re spending each month before you can set a budget and start working towards your goal (I’ll share more on budget setting later!)

Jumping into the water can be scary, though. When I sat down to write my first budget, I had to fight past a lot of reluctance. To be honest, it felt like I was taking off my clothes and standing in a changing room, under a really unflattering light, and examining all my wobbly bits. There was nowhere to hide. Why had I spent $35 on earrings last month, when I was already in my overdraft? Why hadn’t I cancelled that subscription for a magazine I never read anymore? And why, for fricksake, had I agreed to that expensive night out with friends without checking my bank balance first?

There’s no easy way around this: it’s got to be done. And once you know where your money’s going, you’re back in control. For instance, you might think you’re spending $60 a week on groceries – but if you’re not counting the $4 per day you spend on a coffee and bagel instead of breakfast on the way to work, or the take-out you always have on a Friday night, then you’ll always be surprised when you’re in your overdraft at the end of the month. That doesn’t mean you can’t have treats – but you need to include them in your planned budget and be realistic about whether you can afford them right now. If you can treat yourself every day and still work towards your goal – great! If not, see the next section for how to cope with change…

3. Changing Your Habits and Routines Doesn’t Have to Hurt

If you always shop at a particular store for shoes, or can’t imagine starting your day without a Starbucks skinny caramel macchiato, then you may be dreading sticking to a new budget. Changing long-term spending patterns – and the habits that surround them – will be a challenge, but it doesn’t have to be painful. This is where your primary motivation, written down where you can see it every day, will help keep you on track. You can amplify this reminder by setting your phone or desktop background as your dream holiday destination… or one that reflects the career you’re saving up to train for… or the car you’re saving to buy so you can be more independent.

Thinking about the reason you’re making changes will transform your new habits from difficulties to positive actions. That boring pair of shoes you bought instead of the chic ones you really wanted? They’re the pumps you’ll be wearing when you put down the deposit on your new car. That coffee you’re wasting time making at home instead of grabbing your favorite brand on the way to work? Every time you drink one, you’re adding dollars to your travel fund.

Think about it this way: your current habits and routines are what’s created your current financial situation. Unless you step outside of your comfort zone, your current situation won’t change. But if you change your focus, and think about what you’re gaining instead of what you’re missing out on, you may even find yourself having fun with it. I’ve started inviting friends over on Fridays instead of getting take-out. They bring beer and cheesecake, I cook, and even though I’m no MasterChef it’s way more interesting than my old Netflix and pizza routine.

4. Your Best Accountability Buddy is Yourself

I’m Matt’s accountability buddy – but only some of the time. Once a month, we have a chat over the phone and he lets me know what changes he’s made and what challenges he’s faced. I’m happy to help him – but I know that for 29 or 30 days out of the month, he’s having to update his spending records, stick to his budget, and shop around for bargains without my help.

When I started working on my own finances, I didn’t have anyone to talk to about my progress (the relationship with my boyfriend didn’t last under the financial stress). I started keeping a journal to vent my frustrations, record ideas and events, and generally cheer myself on. It’s been so helpful that I still do it now. Even if I only write a single sentence, I put something in there every day. Recently, I looked back at my earliest entries and it was a huge confidence boost to see how far I’ve come.

A physical notebook is a lovely item to write in by hand if that suits you. I prefer to type and to have somewhere I can write anything without fear of someone stumbling across it. If you want a password-protected online journal you can access from anywhere, there are a ton of good ones available. Here are two free ones I like:

Penzu (penzu.com) is an online journal that resembles a physical one, with customizable backgrounds and colors. It’s encrypted, has a great auto-save feature, and allows you to add images to your entries. A basic account is free.

Open Diary (www.opendiary.com) is a bit different, because it allows other people to view your entries. You can post anonymously while sharing personal experiences in a supportive environment – similar to LiveJournal, but smaller and friendlier. This could be the perfect option for people who want a support group, without sharing their financial woes with their friends, family or colleagues.

So, you’ve found your purpose, you’re ready to examine your spending, you’re prepared to make some changes, and you’ve got somewhere to note down your goals and achievements… what’s next? Time to get started! Part 2 tackles the nitty gritty of making a budget and dealing with bills and debt.