Embarking on a journey of financial self-discovery can be both empowering and scary. Taking an honest look at your income and expenses is a crucial step towards gaining control over your financial reality. In this guide, Sprinkle of Care walks you through practical techniques to assess your financial reality, reduce stress, and find the path towards a more secure future.
Take an Honest Look at Your Income and Expenses: Unraveling the Process
1. Gather All Financial Documents
Start by collecting all relevant documents related to your income and expenses. This includes pay stubs, bank statements, credit card records, and any other financial documents. Having this information at your fingertips provides a clear, clear overall view of your financial reality and gives you a stronger arsenal to fully understand the health of your finances before setting any financial goals.
2. Create a Detailed List
Map your financial territory by writing down itemized numbers all sources of income, including your monthly salary, bonuses, freelance/side hustle earnings, and any other monetary inflow (money coming into your pocket).
Separate your monthly expenses into fixed (e.g., rent, utilities) and variable (e.g., groceries, entertainment) categories. When you separate your expenses (money coming out of your pocket) into categories, you will be able to get a better picture of which are your smaller vs. bigger expenses for the month.
Creating a detailed list of how your money is coming in and coming out, it helps you to become more mindful of the smaller bills that are generally overseen as not making a huge impact on your finances.
3. Track Every Penny
Tracking your every penny is annoying, we know! But it is the fine art of financial scrutiny that makes you serious about unveiling your financial reality. For a month or next 30 days, carefully track everything you buy, no matter how small or silly it may feel.
This can be done manually by jotting down expenses on your smart device or a handy-dandy notebook old school style. You can also consider using a budgeting app that can give you a visual outlook of where your money is being spent.
By tracking every penny, you can learn which areas you are overspending, and determine if this is an area that you can tweak to improve your finances. A good tip, if you're unable to write down every expense in the moment, collect your receipts and count them at the end of the day or week. But don't forget to write it down somewhere.
4. Be Honest with Yourself
To get to the nitty gritty of your spending habits, you gotta be honest with yourself and the process. This is how you can truly learn about your overspending habits and begin to take accountability of your financial behavior.
Don't underestimate or overestimate how and on what you spend your money. Whether you are frugal and living paycheck to paycheck or you make poor financial decisions on a consistent basis, this step is about confronting your habits and figuring out where the trouble areas are.
Step 3 and 4 can feel the scariest. This is because you have to participate in self-reflection on the frequency of your spending and for some people, guilt can come to the surface. But stay calm and keep reading!
This post also shares some tips and reminders on how to stay mindful throughout the process so that you can reduce the fear of confronting your money habits and reduce stress on budgeting techniques.
5. Analyze Patterns and Trends
After a month of tracking where your money is going, decode your spending habits. By analyzing the spending patterns, you can make budgeting decisions on where to cut down on expenses and how to properly allocate income so that important expenses are taken care of before spending on less important items.
Make sure to self-reflect and be honest when answering the questions below.
What areas are you consistently spending on?
What expenses could be cut down or eliminated altogether?
What patterns have you noticed in your spending behavior?
What is a goal that you can work on for the next 30 days or month to improve that financial pattern?
Identifying patterns and trends also gives you a deeper understanding of your behavior when it comes to your pockets. This exercise also helps your muscle at becoming more proactive with your spending and financial decisions. Be sure to hold yourself accountable for your answers and your goals for the upcoming month.
Write down your responses through journaling or voice memos. Refer back to them through the next 30 days so that you can stay focused on your short-term financial goals.
Easing the Way: Reducing Stress and Fear
Confronting your financial reality can feel intimidating. Remember to not be so harsh on yourself as you learn about your spending patterns. This process is not to feel shame, it is to practice accountability, and you should be proud of taking action.
If you're a beginner on saving money or budgeting techniques, take it easy and build your financial literacy muscle little by little. You don't need to be perfect right now, just stay steady.
Here are some tips on how to stay mindful throughout the process so that you can reduce the fear of confronting your money habits and stress.
1. Practice Self-compassion
Remember, you are not alone in this journey. Examining your finances can feel apprehensive. Know that this is normal. Be kind to yourself and give yourself compassion throughout the process.
Acknowledge your strength and will to take a positive step towards financial empowerment. Recognize that unveiling your financial reality is an act of self-care.
2. Focus on Solutions, Not Judgments
Taking an honest look at your income and expenses is not an intent to get tunnel vision on your past financial choices. Dive into this process with a growth mindset and understanding that your current financial situation is a starting point, but the end for you.
Shift your focus towards finding solutions and making positive changes moving forward. Get in alignment of the financial wellbeing you aspire to achieve and don't be judgmental on your financial decisions from the past.
That past version of you only acted based on their knowledge and personal capacity could do at that point in time. This process is about refining yourself to become the better version you aim to be.
3. Seek Support and Accountability
Get connected! Your financial journey is likely to resonate with someone else. Look for online communities or support platforms, like Sprinkle of Care, where you can share your journey and stay accountable throughout the way.
Sharing your experience with others can keep you motivated and you'll be surprised at how someone else can learn from you. Companionship, whether it is with a trusted confidant or an online community, can alleviate the feeling of being alone in this process and reduce overwhelm.
4. Break it Down into Manageable Steps
Your financial journey isn't about how much you can tackle all at once. This is not competition. If you are a beginner at budgeting or saving money, break things down for your own peace of mind.
Focus on bite-size tasks, such as tackling an expense category at a time. Smaller short-term goals will add up over time and you're more likely to stay steady.
5. Celebrate Small Wins
Whether it's a week of disciplined budgeting or discovering a new way to trim a recurring expense, each step forward is a win worth celebrating. Embrace your victories, no matter how big or small, because everything counts in your financial journey.
Acknowledge your choices, decisions and positive outcomes. And if something didn't turn out the way you anticipated, celebrate the lesson learned behind that experience.
At the end of the day, this is still a learning process. Give yourself permission to be flexible.
Conclusion
In working towards financial empowerment, taking an honest look at your income and expenses is the gateway of building a secure future. Remember, this journey is unique to you and your commitment to self-improvement. With each move, you create a path towards a more gratifying financial wellbeing. Embrace the process and trust yourself along the way.
Remember, taking control of your finances is a powerful act of self-care and self-improvement. With each milestone you set for yourself, you are moving towards a more secure and fulfilling financial future.