8 Steps to Organizing Your Finances - Our Road to Financial Freedom

Image Credit: renjith krishnan
Yes, I am going out on a limb and discussing finances!!  Normally this is a topic I shy away from as I find it is just too personal, but I have just spent the last month painsakingly organizing our finances and I really felt like I needed to share the process in hopes it may help some of you who are struggling.

I have been a SAHM (Stay at Home Mum) for 8 years and I will be honest with you, it's been really tough living off of one income.  And we actually really haven't been living off of just one income, we have been living off of lines of credit, overdraft & credit cards!  It's a vicious cycle and I have finally decided we need to change our ways.

We were headed for a huge financial crisis, so it was time to get real with our finances. Gail Vaz-Oxlade pretty much challenged me in her new book Debt Free Forever: Take Control Of Your Money And Your Life, and gave me the push and inspiration to change the way I have always done our budgeting. We have drastically cut our variable expenses, started saving money and most importantly paying off our debt (yes, you can do both!).

We have implemented Gail's Magic Jar system and are now living off cash only and boy does it feel great! It is going to be a bit of a challenge, but we are both totally up to it!! And I am looking forward to being financially free!!

Here are some steps we did to help us get on track to pay down our debt & take charge of our spending:

1.  Create a spending analysis worksheet for the last 6 months - yes, six months!  This was very time consuming & challenging, and I was ready to give up multiple times, but I can't stress enough how this step was absolutely crutial in order to see where all of the money was going.  It sure was an eye opener!!

2.  List all debts & include interest rates, minimum payments, balances (lines of credit, credit cards, hardware store credit card...)

3.  Transfer balances from high interest credit cards to one low interest credit card; calculate our monthly payments to have it paid off in 2 years. (Alternatively, we may consider a consolidation loan for both the credit card balance and the lines of credit)

4.  Create a zero balance worksheet - this includes income, monthly fixed expenses (mortgage, utilities, etc.) & monthly variable expenses (groceries, entertainment, etc.).  In order to have the money to pay off our credit card debt in 2 years, we have to drastically reduce or even eliminate some of our variable expenses, as you will see in the worksheet below.

But we also had to add in the money we were spending annually that was never budgeted for, such as home/vehicle maintenance & medical/dental deductables!  We realized that putting all of our money on debt repayment & putting nothing into savings was actually making things worse!

What always ended up happening was that we would have no money saved for emergencies such as a new battery for the van, or an alternator for the truck, etc., [both of those things just happened!] so we'd have to bring out the credit card then pay that with the line of credit when it was due....  You get the picture!
5.  List out all of the bills & when they are due every month.  Referencing our Zero Balance Worksheet, I created an expense sheet detailing how much income we receive each paycheque (my husband gets paid twice a month) and which bills came out when. And since my husband has a higher income during the months of Sept-Dec I had to come up with a second expense sheet for Sept-Dec.  Again, I make sure to have a zero balance so I know exactly where our money is going.

And because I am uber organized, I have also created a check-list twice a month for bill payments, transfers, withdrawals (for the envelopes), etc.  It just helps me keep better track of our finances.
6.  Set up multiple (free) bank accounts.  If you haven't done so, I highly suggest you do this. We have accounts for: income/deposits, bill payments, as well as a multitude of savings accounts.  We have all of our deposits set up to go into our income account, then when we get paid I transfer the necessary amounts into the bill account, the savings accounts and withdraw the cash for the envelopes.  This way I don't need to worry if we have enough money in the account when the bills are due (we have automatic payments set up with almost all of our bills).

7.  Implement money jar system (or envelopes in our case, as we didn't have enough jars!) for the variable expenses and divide up the money into the appropriate categories.  To make things a bit easier for us, I have not created jars/envelopes for some of our annual expenses; instead, I will transfer the money for these expenses into their own individual savings accounts at the bank  We have multiple free bank accounts, so we can do as many transfers as we want for free!  To keep track of our purchases, we mark them down on a small card with the envelopes.  Each expense has their own card and we keep all reciepts and balance the envelopes every payday.

8.  Bring in a second income.  I have decided to go back to school to train in a different career.  I mentioned in a previous post that I will be starting a program via correspondence this month. I can't wait to get back into the workforce and earn my own income again!! I will definitely miss being a SAHM, but the hope is that I will be able to work from home for the first year or so after graduating, which is a huge plus!

Going back to school brings many expenses, but the Canadian Government offers a program called the Lifelong Learning Program, where you can withdraw money from your RRSP for each year you are enrolled as a full-time student. And we will have 10 years to re-pay - tax free & interest free! Win-win!

Once I start bringing in my own income, the worksheets will have to change again; but that's a good problem, right?  :-)  We will also have to re-evaluate our debt repayment plan to have our lines of credit paid off in 2-3 years, too.  Whoohoo!!

I hope I haven't bored you with all of this money talk, but I am so excited to finally get our financial situation under control!  Please keep in mind that this is what worked for us, and may not necessarily work for you.  You will have to find your own way of doing things that make sense for you & your family.  Good luck!!

Feel free to ask me any questions and also I recommend checking out Gail's website hereThanks, Gail!!

What about you?  Do you feel that your financial situation has gone out of control, or are you in control?  Any tips or advice you can share with us?


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