Get Your Financial House In Order: A Simple 6-Step Plan

by Gary Foreman

Getting Your Financial House In Order photo

Are you tired of unpleasant financial surprises disrupting your budget? Get your financial house in order and gain control of your family finances with this simple 6 step plan.

OK, so you’ve decided that it’s time to get your financial house in order.

You’re probably thinking that you don’t even know where to start. But like any trip, if you want to get somewhere specific, you have to travel with a preplanned route in mind. If our goal here is to gain control of our family finances, we’ll need an organized plan of action.

The Dollar Stretcher gets a lot of questions from families that want to control their financial future. Some are planning for retirement. Others are looking for ways to ease a transition to a one income lifestyle. Still others are concerned that they may have to deal with a layoff or corporate downsizing. Many are concerned about inflation and an uncertain future for their savings and retirement plans. Let’s look for ways people can address these issues.

Today we’ll consider an overall plan that can help you gain control of your finances so you can be better prepared for an uncertain financial future.

1. Create a Budget

First, You’ll need to assemble a basic budget. Oh no! There’s that scary word: budget! It’s up to you whether you choose to be scared or not. But if you want to gain control of your finances there’s no more efficient and adequate tool to do the job. Perhaps it’ll be easier if you consider it as a ‘spending plan’.

Budgets are really pretty simple if you strip them down to their basics. A budget is just a record of your income and expenses by category – in other words a plan for your spending. You’ll need to keep a ‘planned’ budget and then compare your ‘actual’ figures to your plan. No magic here, just simple math and record keeping. A spreadsheet or one of the many apps available will help you collect and analyze data.

You’ll need to know your starting point. What’s happening with your income and expenses today. The best way to accomplish this is to go back and see what’s actually happened over the last three, six or twelve months. If that seems like too much work, you can just begin to keep track of your income and expenses today. But you won’t be able to make any comparisons or corrective steps until a number of months have passed.

2. Balance the Budget

Is your budget in balance? All the records in the world won’t do you any good if you’re regularly spending 10% more than you’re making! You’ll need to adjust your planned budget to avoid deficits.

If you’re planning on adjusting to a one income lifestyle or a career change (or for any other major financial changes, for that matter) you’ll also need to do a ‘what if’ budget. This exercise will allow you to see what would happen if you take that big step. (It’s also a great tool for families that are worried about losing an income to ‘downsizing’ or getting ready to retire.)

The ‘what if’ budget is where you make the adjustments in your plan for the ‘what if’ situation. How much income would you have if only one partner worked or if one of you took a pay cut to get a less stressful job? What if you took early retirement? How would that change your taxes? If the need for two cars were eliminated, how would that change your expenses? What would it take to get this ‘what if’ budget in balance?

You’ll begin to see whether your goal is a just a distant dream or something that can be achieved with effort.

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3. Cutting Expenses

For many families, cutting spending will be the hard part. You’ll be discussing the touchiest areas of a relationship. It’s hard to agree to give up some of our spending. What she views as an extravagance, he’ll view as a necessity.

But, fortunately, you’ll have an advantage. That fact that you have a joint goal in mind makes it that much easier to compromise on the necessary activities to accomplish that goal.

One word of caution here. Be sure you’re both on the same wave length when you put your plan together. Failure to ‘buy into’ the decision will cause problems later. (See 6 Steps to a Successful Money Talk with Your Mate.)

A part of any long distance trip is keeping on course. It is surprising how quickly small deviations from your plan can add up and leave you lost in the financial wilderness. You’ll want to develop a strategy to compare your actual income and expenses to your plan. The process will teach you what’s working and what’s not. Some areas will need refiguring. Some expenses will require additional discipline to control.

4. Reduce Debt

For most families, no financial plan would be complete without a debt reduction strategy. Interest payments sink many a family budget. Your financial house isn’t in order if you’re carrying balances on credit card accounts. It’s far better to have interest working for you rather than against you!

5. Increase Savings

Savings are also part of a thorough plan. You’ll use savings to get through unplanned rough spots on your financial journey.

Let’s face it, from unexpected auto repairs to medical bills, life is full of unplanned pitfalls. While we can’t predict which problems will come to us, we can prepare to handle the unexpected. Most often the solution we’ll use is called ‘savings’.

6. Celebrate Your Success

Periodically you’ll want to celebrate your successes. The destination in your family financial travels will always be changing. In fact, it’s more of a journey than a destination.

But that doesn’t mean that you shouldn’t stop along the way and celebrate how far you’ve come. Not only are these victory parties enjoyable, they’ll also help motivate your family to the sacrifices necessary to achieve your goals.

Whether your family is planning on a a lifestyle change or your just tired of financial surprises, it’s wise to keep your financial house in order.

About the Author

Gary Foreman is the former owner and editor of The Dollar Stretcher. He's the author of How to Conquer Debt No Matter How Much You Have and has been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money, Credit.com and CreditCards.com.