Reached Your Financial Limit? Fourteen Key Steps To Turn Your Finances Around

One of the interesting parts of running a popular website like The Simple Dollar is that you get to see the terms that people type into Google when they’re searching for your site. So, if someone types “money management” into Google and then eventually click on my site somewhere in the results for that term, it can be seen in the site statistics.

I love looking at these terms because they often give me clues as to what people want to see on the site. I’m not so much interested in the popular terms – if 100 people type in a particular term and find The Simple Dollar, I know I’m covering it well.

What I’m interested in are the search terms that have just one or two results. Those search strings often tell a story… and they often stick right into my heart. Some examples:

in debt scared help
how do i fix finances?
need help repaying debt

I see lots of these searches in the results and they each tell a story. There are a lot of people out there who have reached their financial limit.

If this describes you at all, you’ve come to the right place.

I was in that situation myself in 2006, panicking and typing desperate search terms into Google. I eventually wound up at the library, checking out piles of books and figuring out what to do to get myself out of debt. I had a baby at home and not enough money in my checking account to pay the bills – and, oh, yeah, I had tens of thousands of dollars in credit card debt and student loan debt.

I tried a lot of things in the next few months. Some worked for me. Some didn’t.

Here’s the truth: the same tactics don’t work for everyone. Everyone’s situation is a little different.

What I’m listing below are a mix of things that actually worked for me in terms of turning my finances – and my career and my whole life – around. Some of them are modifications on what I did – better versions that I figured out later. A couple didn’t really apply to me at the time, but would have been incredibly useful if my situation had been slightly different.

These things work. I personally guarantee it. If you do as many of these things as you possibly can, taking them seriously and giving them time to work, your financial situation will improve.

It’s time to get started. It’s time to turn things around.

Learn from Someone Who Clicks with You

Here’s a big secret: there aren’t that many facts of personal finance that you need to know on a daily basis. Most of the time, if you need to know specific information, you can just look it up. Personal finance success is really about mindset and psychology. It’s about getting your head in the right place.

The thing is that different mindsets and psychological approaches appeal to different people. Some people work best with a coach, while others are lone wolves. Some people are driven by negatives, while others are driven by positives. Some people function best with abrupt change, some by gradual change. Some people are driven by specific goals, while others are motivated by more nebulous causes. Some people thrive on ambitious goals, while others are motivated by realism.

The best thing you can do is to learn about personal finance from a lot of different sources and figure out what really clicks for you.

For example, if you like to be “coached” and are motivated by some tough talk, try Dave Ramsey’s The Total Money Makeover or Larry Winget’s You’re Broke Because You Want to Be. If you’re motivated by introspection and your role in the world, you must read Joe Dominguez and Vicki Robin’s Your Money or Your Life. Just hit the library’s personal finance section, flip through some books, and pick out a few that seem promising. Take them home and read through them.

If you learn better visually, try checking out the videos from Ramit Sethi or Robin Sharma or Amitra Singh.

(Or, better yet, stick around The Simple Dollar and check out my own book.)

Find an approach and a style that appeals to you. If a book or a website isn’t clicking, move on to another one. Keep absorbing ideas and approaches. Find new things that work for you and toss out the other things.

Construct a Debt Repayment Plan

If you have no debts, you’re in great shape. In fact, I’m not really sure why you’re reading this article. You should be focused more on investing and retirement planning.

If you have a single debt, the plan is easy. Make the biggest payments you possibly can toward that debt. I do not believe that there are “good debts” because all debts have a negative impact on your monthly cash flow. The fewer your required monthly bills, the better.

But what if you have multiple debts? The solution here is to construct a debt repayment plan.

A debt repayment plan is just a listing of your debts in a particular order. Each month, you make minimum payments on each debt on that list, but you strive to make a nice extra payment on that top debt. When it’s paid off, cross it off the list and treat the new top debt as the one you should toss extra payments to.

There are different philosophies on how to order debts. One school is to order them by interest rate, with the highest rate first. Another method is to order them by balance with the smallest first. The math slightly favors the first method, but the second one has the best psychology as it gets you to the success of a debt payoff the fastest. Either one works.

I also have a detailed walkthrough of setting up a debt repayment plan if you need more help.

Keep Track of Every Single Penny

This is vital when you’re starting to get a grasp on your finances. To me, this is the core idea behind budgeting and when people suggest that you budget, this is the true foundational step.

Here’s what you do. Every single time you spend even a penny on anything, record it in some way. Every single time you receive even a penny in income, record it in some way. In each case, write down the amount as well as an explanation of what that money represented. Where did it come from? What did you spend it on?

If you go to a store and make multiple purchases at once, hang onto that receipt. Each of those items should essentially be a new line in your record.

At the end of a month or so, sit down and go through all of those items. Did that expenditure make sense? Was there a good reason for this purchase? You’re going to find that a lot of them were silly and it will be a giant revelation to you. This review is just as important as honestly recording everything, perhaps more so.

How do you actually do this? You can start by keeping a pocket notebook and a pen with you. You can also use a program that makes this very easy, like You Need a Budget. YNAB, as I call it, works as both a desktop program and a smartphone app so you can record info in either place.

Clean Out Your Closet

It’s a pretty common experience for people when they reach their financial bottom. They’re often in a situation where they can’t pay their bills, so they panic. They need some cash immediately in order to keep everything from collapsing, but perhaps their credit cards are maxed out. This actually somewhat describes me in April 2006.

The solution to this problem is to clean out your closets and sell off the stuff you’re not using.

In my closet, I found video game consoles, video games, some trading cards, a pile of DVD sets, a few slightly old electronic devices, and several other odds and ends. I went through all of them and asked myself a key question.

Have I used this or looked at this in the last six months?

(If the item was seasonal, I changed it to the last year.)

I didn’t ask myself if I might use it in the future. My philosophy is that if you’re not using something, you’ve found something else to replace that use in your life.

I sold off all of the stuff that qualified, paid my bills, and put a pretty nice dent into my credit card debt, once everything was all said and done.

Clean out your closet. Use that question as the key thing you’re asking yourself. Turn to Craigslist or eBay with what you find. Use that cash to make your first big dent into your financial situation.

Ditch Cable

Once you’ve done those things, the next thing to do is to start digging through your monthly bills. I’ll hit a few of the most common bills that tend to really nickel and dime people, but all of your bills deserve your attention. Let’s start with cable.

If there’s a major bill you have that’s becoming less important by the day, it’s cable. If you’re in an area where you can get other services (like internet access) without bundling with cable, cut the cable.

Still want to watch television? Try getting a Mohu Leaf or another low-cost digital antenna. In most major cities, you can pull in 10 to 20 digital channels over the air (though it may or may not work in rural areas – you may need a roof antenna if you’re far away from large cities).

Also, get a Netflix account and get a simple box that allows you to watch Netflix on your television, like this Roku box or an Amazon Fire. Netflix offers the same type of nearly infinite television options that a cable package provides, with more television series and films than you could ever possibly watch. Not only that, these boxes allow you to subscribe to Youtube channels and treat them much like regular television channels – and there are a lot of great Youtube channels out there.

For a $30 to $120 initial investment, you’ve either eliminated your cable bill or dropped it to $9 a month. Not only that, you have boundless amounts of streaming content to watch on Netflix and Youtube as well as the dozen or so over-the-air channels you can pull in.

Shop for a Better Bank

Although banks might seem similar on the surface, different banks often have distinctly different offerings – and if you add your community credit unions to the mix, you have a lot of choices before you. Here are some of the factors by which you should judge your current bank (and other banks and credit unions in your community).

No fees (or very low fees) You shouldn’t be paying to keep a checking account open unless you have a history of disastrous credit and bouncing checks. Find out what the fees are on the basic accounts at various banks and credit unions in your area for minimum balance fees, monthly maintenance fees, ATM fees, and online banking fees. These should ideally be zero or, if not, they should be very low.

Free online banking and bill pay If you can’t do your banking business online, your bank or credit union isn’t serving you well. The system should be easy to use, too – if you’re scared of it, it’s not useful.

Customer service If it’s difficult for you to actually have a real live conversation with someone at your bank, there’s a problem. They should have reasonable hours.

FDIC insurance This is a given for most banks, but run away if you don’t see this.

Interest rates This should be the final comparison factor between banks. If they’re charging fees but offering a higher rate, you’ll need to have quite a bit of money in there to make up for the difference.

If you sit down and compare your bank to the other banks and credit unions in your area, there’s a good chance that the offerings at your bank don’t measure up. Get a better bank, because a bad bank is a constant money drain.

Drop Your Cell Contract

When cell phones really rolled out in nationwide popularity in the late 1990s and 2000s, it was led by major providers who managed to become the dominant players in the market. Most of us likely have – or have had – a contract with these providers at some point.

As the cell phone world has matured, though, many lower cost providers have popped up and, at the same time, larger providers have been forced to become more flexible with their offerings. In short, you don’t have to be tied to a contract any more which puts you in control.

It’s probably not worth it to break your contract early, but find out when your contract expires. The day it does, start shopping around with some of the pay-as-you-go independent providers. I highly recommend checking out Ting, for starters, but there are many other non-contract providers that can save you a ton of money. You can get a good arrangement with Ting for just $20 a month – seriously. You’ll still have your old number, texts, tons of minutes, and data availability, too.

Not only that, being contract-free means that you can easily shop around for an even better deal and you’ll be eligible for every introductory offer that cell providers might throw at you.

Establish a Smarter Food Routine

Like a lot of people, my food acquisition system was a mess. I’d go to the grocery store and figure I’d decide on meals as I wandered through the aisles. When I went home, I’d often find duplicates of stuff I bought or I’d find that I missed a key item or two, so I’d end up at the grocery store again a day or two later.

The disorganization was expensive. I’d constantly find things that I’d decide that I “needed” on the spur of the moment each time I was in the store, and I’d find myself in the store far too often. I’d buy duplicate items and end up with way too little of some things and way too much of others, ending up with food items going to waste.

I needed a better food system – and it was easy.

The basic system is that each Sunday or Monday – the day I shop for groceries – I pull out a flyer from the two different stores I go to (you might only go to one – that’s cool) and I look for what items are on sale. Then, I come up with a few recipes for the week that will use those items and I fill in the blanks on a generic meal plan – what my family will eat on each day. I make a grocery list from these recipes, then I check the fridge and cupboard for staples (and for things for the recipes I might already have). Then, I go to the store and just stick to the list. (We also use a smart strategy for avoiding food waste.)

From where we were at in 2006, I’d estimate that we’ve cut our food bills by 70% – no exaggeration. (Well, maybe a little – our actual reduction was about 40%, but we had a one year old grow into an eight year old and also added two more children to the family, so the 70% is an estimate.) Yes, our food bills went down as our family grew.

I always have plenty of good stuff to eat. We still go out to eat on occasion, but we plan ahead for those meals out. I’m happy with our food consumption, regardless of cost – and it’s certainly way cheaper.

Avoid Stores, Online and Off

Retail therapy is your enemy. Got that? It’s your enemy.

The entire purpose of a store – or a website that sells things – is to get you to buy more stuff. They have many, many, many clever ways of convincing you to do just that, often handing you plenty of justification for that purpose against your own internal questions (and anyone else that might question it).

The best solution to this is to just avoid them entirely. If a place primarily exists to sell things, don’t go there.

This might cause you to struggle a bit with your normal daily routines. I had a routine of visiting a bookstore very regularly and a coffee shop on a frequent basis, too. I just had to find a new routine.

Do everything you can to minimize your time at shops and stores, whether online or off. It’s a lot easier to not spend if you don’t find yourself in a place that’s constantly begging you to spend.

Collect Experiences, Not Things

For many years, I was a proud book collector. I also had a hefty video game collection and a trading card collection, too. Sarah and I had a rack of DVDs that numbered in the hundreds.

I collected things.

In reality, though, I was using things as a substitute for experiences. There were a lot of books that I wanted to read. There were a lot of movies that I wanted to watch. There were a lot of video games that I wanted to play. I had money, but what I didn’t have was time.

So I substituted buying stuff as a replacement for those experiences. I didn’t have time to read three books a week like I did in college, but I did have a credit card that let me buy three books a week … and that was kind of like it. The same thing more or less occurred with movies and video games, too.

My solution was to focus entirely on the process. Rather than collecting books, now I just toss any books that seem interesting into my library queue and/or my Amazon wishlist and I quickly get back to the real experience – reading. I keep a list of all of the books that I’ve read and I take a lot of pride in that list. I do the same thing for DVDs/Blurays and movies – I collect films I’ve viewed. I take pictures of natural places I’ve visited.

I now collect experiences, not things. I can usually find a way to borrow the things I need to have those experiences – that’s what a library is for.

This was actually the single hardest transition for me to make. I have a pretty strong addiction to stuff, one that still rears its ugly head from time to time. Whenever I see it happening, I spend some serious time dipping deep into the experience I’m substituting. I devour a whole book in a weekend or stay up late watching movies with my wife.

An experience collection is a lot cheaper – and, in the end, a lot more fulfilling – than a collection of things. (It takes up a lot less space, too.)

Find Free Activities to Fill Your Social Calendar

Within a twenty five mile radius of where you live, I guarantee you that there are at least five awesome free things going on every week, things you’d deeply enjoy participating in. The trick is finding them.

The reason people go out and participate in more costly social activities is because those things promote themselves heavily. It’s a lot easier to hear about the opening of a new restaurant than it is to hear about a list of activities from the local parks and recreation department. It’s far easier to see a flyer talking about a store sale than it is to hear about a free class or a free concert.

It’s worth the effort to start looking for these free things and filling your calendar with them.

Start with your city’s website. Check out the parks and recreation department and see what free things they have going on. Check out the community calendar, too, and the list of civic organizations.

Stop by the local library and see what kinds of activities and clubs they have on offer.

If you have a local university, those places tend to be full of great things that are open to the community.

Repeat this process with every city or town that borders yours, and then perhaps the ones bordering them. Also, check out your state’s park service and see what state parks are within that radius and what events they’re hosting.

Finally, check out those free newspapers you find at the front of the grocery store. Those things tend to be treasure troves of free community activities.

If you do this earnestly with an eye toward finding new things to do, you’ll discover many, many things to try.

Start from the Bottom on Every Purchase

Whenever you need to buy anything, start from the bottom.

What does that mean? It means that you should first look for that item at the cheapest possible retailer. Only move up to the next “level” of retailer if you don’t find something that meets your needs.

For example, if you need some clothes, start at consignment shops and secondhand stores. Simply go in there and see what’s available. The items you find there will be dirt cheap. If you don’t find what you need, jump to a discount retailer and look around. Move slowly upwards.

What will likely happen – it happens all the time with me – is that you find a perfectly appropriate item for very cheap at a low-end retailer. If you’re happy with the item, then it’s just a huge savings for you.

You don’t have to compromise a bit on what you’re buying. Just start at the bottom and look at what’s actually there and whether it meets your needs.

Start a Real Emergency Fund and Stop Relying on Credit

Many people skip having an emergency fund and instead rely on credit cards for emergencies. When there’s a pinch, they pull out the plastic.

The problem with this solution is twofold. First, it relies on the bank to continue extending your credit. What if they choose to cancel your card? What if your card is stolen? Second, it relies on you having plenty of breathing room beneath your credit limit. What if multiple emergencies hit when you’ve got a nice balance on the card?

In the end, nothing beats cash. I highly encourage everyone to have a minimum of $1,000 in savings just for those unexpected events that sometimes slap us in the face. This should take priority over everything else. Once you’ve got your high interest debts out of the way, you should build an emergency fund equal to two months of your family’s living expenses.

If you have this kind of buffer, you can feel safer just cutting up your credit cards because you’ll be able to handle emergencies on your own. With your cards cut up (and your numbers deleted from online accounts), you can begin to break free of debt.

Start Contributing to Retirement

This final item might be a surprise to many. After all, if you start contributing to a 401(k) or to a Roth IRA, it’s going to directly reduce one’s pool of available money for digging out of a financial hole at a time when they’re really in a pinch.

First of all, if you follow all of the other strategies listed here, your expenditures are going to drop like a lead balloon. You’ll easily free up enough to start contributing to retirement.

Second, for many people, retirement savings is one of those things that nags you in the back of the head. It’s something you know you should be doing, but you put it off.

The most important factor, in my opinion, is that contributing to retirement is something you can that is about building in a positive fashion for the future. Compare that to most of the other tips above, which are about undoing negative mistakes of the past. It’s a sign that things are changing and you’re heading in the right direction instead of the wrong one.

It’s easy enough. If your employer has a 401(k) plan and offers matching, start there. Don’t stress out about choosing the “right” investment. It is far, far more important that you start saving now than that you choose the perfect investment. You can always switch it around later on.

If your employer doesn’t offer that, start a Roth IRA. This is also really easy. Almost every investment company offers one; I am personally a fan of and a customer of Vanguard and that’s where I have my Roth. You just fill out a few forms and set up an automatic contribution – it doesn’t take much time at all.

This is a big step in the right direction, a positive direction, a new and fresh financial direction for you. Good luck.

One Last Thing…

None of these things will turn your finances around immediately. All of these things take time to see the benefits. There is no such thing as a magic wand that will fix everything immediately. It doesn’t exist.

It’s likely that you’ll start off with a buch of gusto doing this stuff and then, in a few weeks or months, you’ll begin to waver. You’ll find things about your new routine that really bug you and the voices inside of you will encourage you to go back to your old routines.

That’s the point where you need to pick your battles. Long-term personal finance success only works if the positives of financial change outweigh the negatives. That means splurging every once in a while. It means enjoying a few things – but not gorging on them. It means spending as little as you can on the things you care less about so you can take care of your financial future and enjoy a thing or two today.

You’ll make mistakes. Don’t give up. You’ll have to make hard choices. Don’t get depressed. The peace you feel once you’re strongly on the road to financial recovery and, eventually, financial independence is tremendous.

You can do this. No matter how scary or impossible it seems, you can do this.

Trent Hamm

Founder & Columnist

Trent Hamm founded The Simple Dollar in 2006 and still writes a daily column on personal finance. He’s the author of three books published by Simon & Schuster and Financial Times Press, has contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and his financial advice has been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.