So yay! You decided to take control of your financial health and future but where do you start?
Start here. Start by minimizing you life. What do I mean? I mean get rid of the excess: clothes, accessories, jewelry, food (in fridge and pantry), books, home decor, furniture, etc. I recommend this as the first step before embarking on your financial journey. There’s a hundred ways to do this but I think Marie Kondo probably said it best (and I highly recommend her book The Life Changing Magic of Tidying Up); keep only the things that spark joy and throw out the rest! Tim Ferriss’ method (Pareto’s Law) in his book The 4 Hour Work Week, was to ask himself what 20% of my stuff do I use ≥80% of the time? Keep that and get rid of the rest! Purging physical items in your life doesn’t just give you more physical space, it also give you more mental space and its psychologically freeing. As an added bonus, it also actually helps you spend less and might give you some extra cash. How does this happen? The whole process of evaluating and getting rid of your stuff helps you develop a mindset and the decision-making capability that makes you more mindful of what you have and in turn of how you spend your money. In addition, you can sell your stuff for cash or donate it for a potential tax deduction.
After purging your stuff, purge your finances. Simplify! This means if you have 6 bank accounts at 6 different banks and a credit card for each retail store at the mall including a cash back card, rewards points card, gas card, etc. GET RID OF MOST OF THEM. People will argue that it will hurt your credit if you close down credit cards, but I think the little blip in your credit is worth the psychological freedom of simplifying your finances. I have personally done this in the past after I had opened a bunch of credit cards to keep transferring my debt around and I currently have a credit score that’s over 800. Now, I only have 1 checking account, 1 high-interest savings account, and 1 joint savings account with Hubs. I have 90% of my investments at Vanguard with one rogue Roth IRA from my college days at Fidelity (which I’m considering transferring to Vanguard if it weren’t for that damn $50 Fidelity closing fee!). I only carry and use 2 credit cards and therefore only have to worry about two balances to pay off in full every month and only have 2 websites I login to regularly to check on my expenses. There’s less chance that you’ll spend money you don’t have, less chance of identity theft and in turn less hassles and stress to deal with if problems with various cards arise. You have no idea how freeing this was for me after having to manage like 10 different credit cards and accounts. After you get your finances under control, you can slowly get more credit cards, but for now shut. it. down.
Next, take a look at your monthly reoccurring expenses. I’m targeting reoccurring expenses here because they may seem small but try multiplying that by 12 and you’ll see it quickly adds up. Also those companies probably have access to your checking account or credit card and will keep charging you stealthily even if you forget this expense or thought you cancelled them. Ask yourself, is there anything you can get rid of? My favorite starting point is cable. I always recommend getting rid of cable. Not only is having 100+ channels excessive, it tends to be a huge time suck. I’m not saying you shouldn’t watch any TV, but let’s face it you probably only watch a few things regularly on TV anyways and you can easily watch them for free online somewhere. CBS.com, NBC.com, Hulu.com, veetle.com etc. Or for <$10/month there’s Netflix, Hulu. If you already pay for Amazon Prime, you got Amazon Prime TV too. If you do watch enough TV to justify cable, then you probably should cut back! Don’t rule out big ticket items either, like your car(s), boat(s), place of residence, though more likely these items will probably fall under downgrading. For example, because my husband started taking public transportation to work, we got rid of one of our cars and now have only one car to worry about. This saves us on car insurance and gas at the least (no car payments since the car was paid off but if yours isn’t this is another savings in your pocket!) Others: weekly mani/pedis, regular blowouts, Tivo, storage unit, magazine subscriptions, heck all subscriptions! anything that regularly takes money out of your bank account that isn’t an investment (and don’t lie to yourself that it is!) The sky’s the limit my friend. Again keep only the things that truly give you joy and enrich your life and get rid of the rest!
Downgrading: Somethings are hard to or impossible to get rid of completely. Then consider downgrading them. This process can be done at a later time since it takes more work to downgrade then to eliminate because it requires comparison shopping and crunching some numbers. Things you should consider downgrading: cell phone bill, internet plan, all insurances (home, car, life), car, primary residence, dry cleaning, hair cuts, dye, perm, even the city you currently reside. Again the sky is the limit. Maybe you’ll protest, I use my phone and internet for work, in which case your work should be subsidizing some or all of the costs so you good. If not, downgrade.
Ok, so that’s it for now. It sounds daunting, and depending on where you are at in your life this step can take a long time. But once you get started it gets easier, just like going to the gym. Get rid of the excess stuff both physical and financial in your life and then you’ll be ready to move onto the next basic step.