9 Steps to Get Your Finances Back on Track

For today’s guest post on getting your finances back on track, please welcome fellow personal finance blogger Marc from Vital Dollar.

Many of us find, at least at some point in our lives, that our financial situation isn’t as strong as we’d like. For most people, that means debt and maybe even poor spending habits.

When you need to get your finances back on track, here's a step-by-step process to making things work, including how to achieve your goals in the future.

It could be student loans, car loans, credit cards, medical bills, or some other type of debt. Regardless, if you want to take control of your money and get your finances back on track there are some steps that you should take.

1. Evaluate Your Current Situation

To get started you’ll need to take an honest look at your current financial position. When things aren’t going well most of us want to ignore our finances and pretend the problems will go away. But in order to make improvements you first need to know where you stand.

At this stage you’ll want to make a list of debts, including the balance, interest rate, and monthly payment. Add it up to see how much total debt you have.

2. Track Your Spending to See Where It is Going

Next, you should track all of the money that you spend for a month to see where your money is actually going. If you haven’t been tracking your expenses you may be really surprised to see the results.

Categorize all of your expenses and add up the totals for each category. You don’t need anything fancy to do this, a simple spreadsheet will work.

Most likely you’ll quickly see some categories where your expenses are much higher than you anticipated. This may be discouraging, but at least now you know where you need to cut back, and where you may be able to find some opportunities for saving.

3. Create a Realistic Budget

After you’ve tracked your expenses you can work on creating a budget that will dictate how much you have to spend in each category going forward. If you’re like most people, your expenses will not be exactly the same each month. Some months you may have quarterly or annual bills that are due. Other months you may have 3 paychecks instead of 2. For these reasons, you may want to consider creating a new budget each month. Once you have the basic budget established you’ll only need to make small adjustments for the few items that need to be changed that month.

It’s a good idea to track your expenses before creating the budget because it helps your budget to be more realistic. Rather than guessing, you’ll know how much you normally spend and you can set a goal that is achievable.

When you’re creating your budget, look for opportunities to reduce your expenses and ways to save money. If you’re going to be paying down debt you’ll need to cut back on expenses somewhere. I suggest looking at your biggest line items and trying to find ways to reduce those expenses.

For example, if you eat a lot of meals at restaurants, there’s no doubt that you’ll have a pretty large amount of money that you spend eating out each month. You can reduce this drastically by taking a lunch to work and/or making dinner at home to avoid so many meals at restaurants.

4. Make a Commitment to Yourself

Paying off debt and making financial changes is not easy. Many people give up along the way. Make a commitment to yourself, and if you’re married try to get your spouse on board as well.

There are loads of great and inspiring debt payoff stories out there, but none of them would have been possible without a strong commitment.

5. Decide on a Debt Payoff Plan

There are a few different approaches that you can take for paying off debt. Two of the most popular options are the debt snowball and the debt avalanche. Both approaches involve focusing your efforts on specific debts to pay them off quickly.

With the debt avalanche approach you’ll make your minimum payment for each debt, and then you’ll throw as much money as possible at the debt with the highest interest rate. For example, if you have a student loan, a car loan, and a credit card balance, most likely the highest interest rate would be for the credit card. So in this case you would make the minimum monthly payment for the student loan and car loan, and then you would pay as much as possible towards the credit card debt each month until it is eliminated. Then, when you’ve eliminated your highest interest debt you’ll move on to the one with the next highest interest.

On the other hand, the debt snowball attacks the debt with the smallest balance first. In this example, if the car loan is smaller than the credit card balance, the car loan is what you would pay off first. You’d make your minimum monthly payment on the credit card and student loan and pay as much as possible each month towards to car loan until it is paid off.

On paper the avalanche makes sense because you pay off the highest-interest debt first. But the debt snowball is effective because you’re able to pay off a few small debts quickly, giving you confidence and motivation. The mental benefit of eliminating debt quickly can be more significant than the benefit of focusing on higher interest debt first.

Neither approach is right or wrong. Choose one that appeals more to you.

6. Develop New Habits

Paying off debt is great, but in order to have lasting impact you’ll need to develop good financial habits that will help you to avoid the same types of trouble in the future.

Good habits include having a budget and consistently living within that budget (even after you are out of debt), saving money each month towards your future goals, and establishing the priorities that will determine how you use your money.

7. Consider Ways to Increase Your Income

When it comes to budgeting and paying off debt, cutting expenses and saving money is usually the first thing that comes to mind. While it’s obviously helpful to reduce expenses, making more money can also help just as much.

Take a look at your current income and see if you can find a way to increase it. This could include asking for a raise at your job, working some overtime, improving your skills or getting a certification that will make you more valuable, or starting a side hustle.

A side hustle is anything that makes money aside from your full-time job. Not only is this a great way to make extra money that you can use to pay off debt or save for the future, but in some cases it may even have the potential to turn into a full-time business (that’s exactly what happened to me 10 years ago).

One of the great things about side hustles is that you have almost unlimited options. Possibilities include freelance writing, blogging, selling handmade items on Etsy, working as a delivery driver, and much more. For a detailed list of possibilities please see Ways to Make Money: 125+ Side Hustle Ideas for Your Spare Time.

8. Monitor Your Progress

Once you’ve gotten your finances back on track it’s important to monitor your progress in order to stay on track. This will involve tracking your expenses (doing it weekly is a good idea) to be sure that you’re sticking to your monthly budget. You’ll also want to check on your progress toward your debt payoff and savings goals. Watching your debt balances go down can be a great motivation to keep yourself on the right path.

9. Set Goals Going Forward

The journey isn’t over as soon as you’ve paid off your debt. The next step is to set savings goals that will help you to prepare and plan for the future. I like to use Personal Capital to track my net worth and keep tabs on the progress towards my long-term goals.

Everyone’s goals will be different. Be sure that your goals are realistic, specific (with an end date), and in line with what you want out of life.

Getting out of debt and changing bad financial habits isn’t easy, but it is realistic if you have the right approach. Follow these steps to make the most of your money and improve the financial health in your own life.


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