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How to Get Real About Your Finances In 5 Steps

So it’s pretty easy to think of the lives we live, such as our personal or professional life. But sometimes we forget about the elephant in the room: our financial life, or our finances.

I’m giving it a “life” here because it’s a part of the way we live and move through life. Even if you have very little money, no money, or a lot of money. Everyone needs to understand and be able to manage their finances.

Do you ever feel like your finances are out of control? Or do you feel like it’s impossible to achieve a financial goal you have? I get it, trust me.

I’ve been there and honestly I’m still here, learning how to handle my finances in a way that aligns with my situation and my goals

I realized in my mid 20’s that I had big goals, and that I would be kidding myself if I didn’t see how money could impact me reaching them. Unfortunately, that is the reality a lot of us face when it comes to this whole adulting thing.

That’s why it is important to take a step back and think about your financial goals. What do you see for yourself in the short-term? The long-term? What does managing your finances look like to you?

These are the types of questions you want to start asking yourself as you navigate your finances. Below are 5 steps you can take to get control of your financial life and get you on the right path, today.

Get Honest With Yourself

The first step is to get really honest with yourself about your current finances. You should take a hard, but necessary, look at what it is you’re currently doing that is helping you reach your goal, and what is deterring you from it.

What I mean is that it’s time to get honest with yourself about your current financial picture. Only you know what’s really going on and it’s time to sit with it. This is kind of like a moment of financial reflection, for a lack of better words.

While every person’s situation is different, these are the basic things you should know about your situation:

  • Income per month
  • Expenses per month
  • Total debt payments per month (Car debt, Student loan debt, Mortgage debt, etc.)

This is a short list of what you need at the very minimum to assess your current situation. You should understand how much you make, what your expenses are, and how much debt you have so you know what you can know what is coming in and what needs to go out.

Being honest with yourself about your finances can help you move steadily towards improvement. It also lays the foundation of creating financial goals that are in reach and attainable.

Identify All Of Your Constraints

Now that you’ve gotten honest with yourself about your finances, your mind will start moving to crafting a goal.

Before we get there, take time to think of your constraints. Constraints are like limitations that may be associated with a project and/ or goal. Think of a constraint as something that can get in your way of achieving your financial goal.

According to Investopedia, “a financial constraint is something that restricts a course of economic action”.

For example, your financial goal may include paying off your car loan this year so you can save on interest. Maybe you have to save your money to pay taxes instead, so you know you may not be able to do both. The taxes here are your constraint, and preventing you from paying off your car loan early. Hello constraint!

This is time for you to reflect and think of all the impediments or reasons that you may not be able to improve your financial picture or why you may not be able to hit a goal in mind. By being honest with yourself and identifying your constraints, you can actually start to build the picture for your financial goals.

As you’re thinking about your finances, it’s okay if things change. Right now you’re just getting used to the framework of taking the reigns with your finances so you can be the one in control for a change!

Create A Financial Picture

After getting brutally honest with yourself and reviewing your financial constraints, you can finally turn your finances into a beautiful, detailed financial picture.

This picture is really your over-arching financial goal or goals. You can definitely have multiple financial goals, heck I encourage it, so creating your picture is really about vision. It’s about breathing life into what you see for yourself, but from a financial perspective.

For example, many millennials are hopping on board with a new movement known as F.I.R.E.

F.I.R.E stands for Financial Independence Retire Early.

This is a growing movement in which people are focusing on ways to grow their wealth, reduce debt, and increase their streams of income so they can retire before ‘retiring age’. In the U.S., retirement age is about 65, hence why some are trying to move that number up a bit!

This is an example of a financial picture that a lot of people have for themselves, being free from financial worry and free to live life on their own terms away from the traditional workforce.

But this doesn’t have to be you financial picture! Your financial picture should and probably will look different than this or it may be different from what your friends or family want to do. Everyone’s vision is unique and its perfectly normal to have your own unique set of financial goals.

Establish S.M.A.R.T. Financial Goals

Establishing S.M.A.R.T. goals is a habit you definitely want to develop as it will help you achieve your goals a whole lot better. You want these type of goals in your financial life as well!

If you’re unsure what S.M.A.R.T. goals are, check out this post first, How to Create S.M.A.R.T. Goals to Achieve Success.

Simply put, the acronym S.M.A.R.T. helps to structure goals in a way to ensure you have everything in place to accomplish them The acronym is short for:

  • Specific
  • Measurable
  • Attainable
  • Relevant
  • Time-based

While I won’t get into too much detail here, you can start to see why this is used to shape our goals. It gets all of our ideas organized into something concise, so we can spend more energy on actually trying to accomplish it.

Once you have your financial picture in place, you can establish smaller goals that lead to your over-arching financial goal. If your financial picture is to be completely debt free, for example, a smaller goal may be to pay off a credit card by the end of the year. See how it’s a stepping stone to help you achieve your big dream?

Establishing S.M.A.R.T. goals is a great way to get aligned with your vision and create an actionable plan that works. It can help you completely take back control of your finances, once and for all!

Take Control of Your Financial Life Back

This last step is actually taking control of your financial life back. Sounds silly but it’s important to work on your every day habits. Your habits are a big contributor to how and if you execute your financial vision or financial picture.

Taking control isn’t just a task you can complete or check off of a list. It is an ongoing practice and habit that upholds your financial picture. It’s about all of the smaller habits you have that can help to make or break your goals.

How Can I Take Control?

You can take control by being mindful of your decisions and how they impact your finances. It doesn’t mean that action is the only solution, but it does mean that you are aware of how certain behaviors can impact your goals.

Maybe you decided that you can’t hang with your friends during weekly brunches in the city (think of New York City for this example). Maybe you realized that while it’s a fun thing to do, the costs added up quick. And now you won’t be able to make that extra car payment you hoped for, to pay it off early.

Maybe you decide that’s okay, maybe you don’t. Just make sure you are the one driving the car and are in control of our finances.

Don’t let your finances control you.

Taking control simply means being aware of what you’re doing, and how it can impact you. Taking control doesn’t have to be some aggressive or even tangible action.

It also means being aware of all the money that goes in and out of your household. Understanding your financial vision and identifying the goals that will help you get there.

Achieving your financial goals or financial picture, isn’t impossible, but it does take some effort and mindfulness.

How will you start to take control of your financial life today?

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