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7 Steps to take your financial life from chaos to contentment

As a clinician specializing in financial behavior, Amanda helps people live empowered, engaged, and educated financial lives.

How do you begin to tackle your financial life when it's an overwhelming mess?

Dear Amanda:

I've had a total wake-up call regarding my money. One day I just felt sick of being scared of the mail or the phone, of being in debt, of worrying about when my paycheck will be deposited so I can get to past-due bills. The problem is, I'm completely overwhelmed and have no idea where to start. I probably need to earn more, I definitely need to spend less, but how do I begin to tackle the mess that is my financial life?

First of all, I'm so happy to hear that you want to face this area of your life head on. Good for you. Many of us try to avoid stressful financial tasks or realities, but as you've discovered this usually just creates more stress in the long run.

Before we jump into a list of tasks, let's talk about two things that people often overlook when turning over a new financial leaf: One is how and why you got here in the first place, and the other is how to balance your financial cleanup with everything else that's going on in your life.

There is a reason you weren't more on top of your finances before. Maybe you were taught that someone else would take care of that for you, maybe you didn't want to think about frustrations in your career, maybe you simply wanted certain things even though you couldn't afford them (I say that totally without judgment; it's perfectly normal to want things and for many people those unaffordable "things" are healthy food, a home in a safe place or basic comforts for yourself or your children). There are a million reasons why people choose to avoid spending their energy and attention on money. My point is simply this: There was a reason, and it wasn't that you're stupid or bad with money.

Now that you've decided to take a more hands-on approach, be prepared to confront whatever your reason was. This is a good thing. Money often brings us to a place in life where we need to grow, and you are going to discover something that has been limiting you. Accept that your previous reason was valid, and now you're ready to open yourself up to something new. Don't berate yourself over the past.

Financial change is rarely a quick fix, and never when it comes to behavior. After your first wave of motivation starts to ebb, there will be a strong temptation to slide back into your old ways. That's why the best thing you can do is to focus not on tasks, but on establishing a positive new routine.

woman with financial problem

Photo credit: mactrunk/iStock/360/Getty Images

How big is your basket?

In my workshops I use the metaphor of a basket to represent the time, energy and focus we have available relative to our other commitments and priorities. Too often I see people with stars (or dollar signs) in their eyes who generate marathon to-do lists of financial tasks, only to come crashing down when they get overwhelmed or inevitably fail to finish everything. By determining how big your basket is (say, an hour or two this week, split between this day and this day) you can assign appropriate, achievable goals. Start small and establish a track record of success. When you feel successful, you're more inclined to keep the behavior going.

What goes in the basket?

Tasks go into the basket in a specific order. This order is designed to help you make progress without getting overwhelmed and giving up. Some of these tasks are simple, others can be lengthy and take time to master. That's okay. You're never going to be "done" with money, so I recommend that you find a pace and time commitment that feels like an easy jog over a flat surface as opposed to trying to sprint up a hill, because I'm here to tell you there's no coasting down the other side.

Information and organization steps

1. Gather all the necessary information: bills, bank and credit card statements, pay stubs, account agreements, etc. Don't worry about doing anything with these until you have everything together.

2. Get organized. Go through your materials and figure out four things: what you earn, spend, owe, and own.

Short-term steps

3. Make a plan to get current on past-due bills. Do you need to look for new sources of income? Make some serious short-term cuts?

4. Learn to manage cash flow and avoid incurring new debt. The goal is to be able to live solvently (meeting your financial obligations on time without relying on credit to bridge the gap).

Long-term steps

5. Maintain positive cash flow and active management of your cash flow.

6. Work consistently to pay off debt.

7. Incorporate positive goals like building a financial cushion/emergency fund, exploring long-term savings goals.

It's wonderful that you've decided to embrace this area of your life and give it some care. I promise you that if you consistently spend time and attention on your money, it will become far less confusing. The arithmetic of personal finance is incredibly simple. Where most of us run into trouble is with the emotional and behavioral regulation that is required to stay organized and avoid temptation. Take it slowly and I know you'll get there.

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