Hitting a rough patch financially can be very discouraging. Thankfully, whether you spent recklessly or fell behind through no fault of your own, there are ways to rectify the situation. Keep reading to learn how to get your finances back on track.
How to get your finances back on track: 6 steps
1. Identify what makes you think you’re off track
How do you know you’re off track financially? The answer to this question matters a lot. After all, a key part of figuring out how to get your finances back on track is understanding what being on track actually looks like.
Sometimes, it’s obvious. For example, if you’ve racked up significant debt, fallen behind on bills, or depleted long-term savings for inappropriate reasons, it’s safe to say you’re off track. The steps you need to take will also be fairly clear in these scenarios (i.e. eliminating debt or restoring your long-term savings).
Other times, the answer is more ambiguous. For example, you might feel off track simply because you aren’t progressing as fast as you once were. Alternatively, you might be living under the pressure of external expectations and fear you aren’t measuring up. In these cases, your next steps will be less obvious (but still possible to identify – keep reading).
2. Figure out what went wrong
What decisions or circumstances derailed your financial progress in the first place?
An easy approach to figuring this out entails looking at your recent transactions and identifying irregularities. For example, the last time I went off track financially, I traced it back to an impulsive vacation. Many people find themselves financially derailed due to an unexpected expense (i.e. emergency home or car repair).
If you can’t identify specific problematic transactions, zoom out and evaluate your broader financial picture. Have you experienced lifestyle creep recently? Did your income decrease? Did you make any significant financial decisions that didn’t pan out as you hoped?
Whatever the underlying cause may be, identifying it is an important step toward balancing it out with corrective action.
3. Put a hold on new major purchases
Until you’re back on track financially, don’t make any substantial new financial commitments. Now’s not the time to upgrade your vehicle or sign up for some shiny new subscription service. Instead, keep your spending as steady as possible.
4. Determine what it will take to get back on track
How much money would it take to get you back on track?
If you’re in debt, this is simply the amount of money it would take to get you back into the green. The concept is similar if you depleted your long-term savings; just figure out how much money you need to replace.
If you’re off track by virtue of having fallen behind on your financial goals (i.e. making aggressive debt repayments or adding to your investment/savings accounts), there are two approaches you could take:
- Figuring out how much money you need to overcome whatever made you fall behind and make up for lost ground
- Simply figuring out how much money you need to overcome whatever made you fall behind then resume, forgiving yourself for the lost ground, and pushing your target date back
The correct approach depends on how far you’ve veered off track. If you’re way off, the first option may be impractical. It’s important that you set yourself up to succeed, so decide what’s best with that in mind.
5. Make (and execute) a plan to get back on track
Now that you’ve identified how much money you’ll need to get back on track financially, it’s time to make a plan for acquiring it.
Start by setting a reasonable target date. Then, consider the following approaches:
- Increasing your income
- Using your existing income more wisely (i.e. reducing reckless spending and paying yourself first)
For some tips regarding the first approach, check out my list of ways to make money fast. Pick a few side hustles to stick with until you’ve earned enough to achieve your goal of getting back on track.
Regarding the second approach, I’ve written these articles you’ll likely find helpful:
- Zero-based budgeting: Everything you need to know
- 10 tips for saving money from your salary
- How to save $10,000 in a year
- Here’s how the 52-week money challenge works
The tips I share in these articles are all about maximizing your income to achieve a specific goal (in this case, getting back on track financially).
Once you’ve established your plan, execute it. You’ll likely need to course-correct along the way, which is normal. Just stick with it until you’re back on track financially.
6. Create a budget to ensure you stay on track for good
In the process of getting your finances back on track, you’ll likely pick up some new positive habits. This step is a great time to make use of that knowledge and create a budget that will help you stay on track going forward. Check out this article in which I’ve compiled 10 simple steps you can take to create a budget and automatically track your adherence to it.
It’s essential to include a plan for handling unexpected and irregular expenses in your budget. Otherwise, you might soon find yourself off track again.
The good news is that most unexpected expenses don’t have to be surprises. In this article, I share some tips for demystifying common unexpected expenses and avoiding being caught off guard by them.
Planning for irregular expenses is easy as well. Just use sinking funds! In this article, I share 15 sinking fund categories every good budget should include.
Additional tips for keeping your finances on track
1. Pinpoint financial goals that matter to you
You may find it’s much easier to stay on track financially when that means making consistent progress towards goals that matter to you. Common financial goals you should consider include:
- retiring (perhaps early)
- purchasing a home
- eliminating debt
- building generational wealth
- having more money for fun purchases (i.e. vacations)
Having these goals in place will make the consequences of falling off track seem more tangible; you’ll miss out on important objectives. In turn, that should hopefully increase your resolve to get back on track and stay there.
2. Recognize practice makes perfect
Life is full of surprises. While a good budget should leave you better prepared for irregularities, you never know how you’ll react until one hits. Keep that in mind and be patient with yourself while resolving to learn from any missteps along the way.
We’ve all heard the phrase “practice makes perfect” – and it definitely applies to money management. What’s important is that you resolve to keep improving over the long haul.
3. Leave room for impulsive spending if needed
While some people have no problem maintaining total control over their spending habits, others are naturally spontaneous and will always feel an urge to spend impulsively. A key part of managing money wisely is figuring out which category you fall into and planning accordingly.
I definitely fall into the latter category. Consequently, I allocate a portion of my budget towards spontaneous, no holds barred spending. Because such spending is accounted for in my budget, there’s less risk of me overspending.
4. Pay yourself first
Achieving your financial goals should be a priority, not a thought that only occurs to you after you’ve paid your bills. Keep this in mind; falling off track in regards to your own goals should feel every bit as consequential as falling behind on bills.
5. Work with a financial advisor
Financial advisors can offer significant value, particularly if you aren’t completely sure what being on track financially looks like. An advisor will help you set goals tailored to your financial situation. They can also provide a framework for determining whether you’re on track at any given moment.
How to get your finances back on track: Conclusion
I hope this article has given you a few practical steps for getting your finances back on track and keeping them there. This is just one of many articles I’ve written on the topic of financial planning – click here to check out my others!