The Covid-19 pandemic affected every country’s economy. Some businessmen made a lot of money during those months, it is true, but an overwhelming majority of households suffered. Not only lockdowns froze business activities and led many companies to close (causing unemployment); ill relatives forced families to spend in medical treatments they were not financially prepared to face. Add to that a lot of people took loans and that most countries are experiencing some sort of financial recession, and you will agree with me that those who do not get their finances in order may end up in some kind of financial hardship soon.
Given that I work for a company that helps professionals help people solve their tax debt problems, I thought it would be good to offer a simple yet effective blueprint everyone can use. Follow these steps, and in just a few weeks you will be able to know where you are financially, and where you can go from there. I know it works because I have been using it in myself for months, with good results.
Without further ado, here you have my four-step plan to get your finances in order:
1. Track How you Spend your Money
From this very moment onwards, start writing down every money movement you make. Any medium will work, from pen and paper to a spreadsheet in your computer, but I strongly recommend you to try with a personal financial software because it will be easier to read its reports and draw conclusions. There are many free, battle-tested applications out there you can use (offering you a list is beyond the scope of this article, but do not worry because they are easy to find). Choose the one you find most comfortable for you, and start tracking how your money comes and goes.
In a few weeks, you will start noticing your spending patterns, and this is the key you need to get your finances in order.
2. Analyze How you Spend and Get Ready to Make Changes
Once you have gathered enough information on how you spend (or waste) your money, time has come for the second step of the plan, which is to analyze how your money flows (or drains) in and out from your wallet. Take a look at how you spend, and then start thinking on how you can replace some of your usual expenses with others that will cost you less. The most common items to attack first are those small expenses that add up to not-so-meaningless monthly amounts. You know what I mean: those after-office cups of coffee, those sodas, those snacks, etc. Take a deep and critical look at how earn and spend your money, and build from there. (It will be fun.)
3. Invest in Things that Will Save you Money in the Long Run
The next step is to start thinking on investments. Where to invest first? In Forex or the Stock Market? It is an option, but not so fast. Your first investments should focus on those things that will help you save money in the long run. If you live near the place you work, a bicycle would be a great investment, for example. With a bicycle, you do not need fuel, insurance, you avoid traffic and you exercise. Maintenance is cheap too. Taking into account that with a bike you will stop spending in taxis or public transportation, it will basically pay for itself.
What if a bicycle is not an option for you? No problem! Look for alternatives that are more suitable for your needs. It is just a matter of being creative.
4. Pay Debts, Build Savings and Start Investing
Once you start saving money, the last step of the plan is to use it to both save and pay off debts —in that order. Start by using a percentage of your money to save, and another percentage to start paying off debts that have the highest interest rates. Once you are out of debts, the next in the list is to start investing to have more sources of income, yet that is subject-matter for another article.