Been Dumb With Money? Here’s 7 Steps That Will Turn Things Around

If you’re struggling with money, you’re not alone. Most of us don’t learn how to handle personal finances in school, and we don’t have anyone to teach us. Considering how complicated it can be to learn the basics of saving, debt, budgeting, and spending, it’s understandable to make financial mistakes in your adult life.

Maxing out your credit card, ignoring savings, and shopping to feel better are very human problems. The good news is that you can fix them. Below are seven actionable steps to get your personal finances in order and start feeling better about your money situation.

1. Face the Numbers

The first step to improving your finances is to understand your current situation. Open up all your accounts: credit cards, checking accounts, student loans, and streaming services. If you don’t know what the issues are, you won’t be able to correct them.

Start by writing down the important parts: how much you owe, how much money is in your checking or savings account, and your monthly expenses. You can organize this on a spreadsheet, notebook, or free apps such as Rocket Money or Copilot.

“We recommend beginning with an evaluation of your net worth statement. This is a tool that provides a holistic snapshot of your financial health by measuring your assets (what you own) and liabilities (what you owe),” says Caroline Russell, Senior Marketing Manager at One Day in July, a financial advisory firm.

This will allow you to get an objective view of your finances and make a plan to sort them out.

“Your net worth will serve as a foundation for planning, help you understand where you are in your unique financial journey, and allow you to better track progress toward your goals,” Russell adds.

2. Make a Realistic Budget

Budgeting isn’t fun, and many people create financial plans that stop working after some time. But it’s the only way to rein in your expenses, and you can create one that suits you.

Separate your money into three categories:

• Essentials: Food, rent, utilities, and transportation
• Flexible spending: Shopping, streaming services, eating out
• Future goals: Saving, debt repayment, buying a house

Track what you spend in one month without doing anything. Just keep living normally, and then look at how you spent your money. You might notice some large leaks, such as frequent food delivery or streaming services you forgot you subscribed to.

This will allow you to start correcting some of your financial mistakes. Then, you can start building a realistic budget for a life that suits your actual needs and organizes your expenses. Apps like YNAB can help you with this.

“The most common budgeting mistake is overcomplication. A good budget should be simple to update and easy to stick with,” says Russell. “Don’t worry about categorizing every expense. Focus on the big picture.”

3. Automate What’s Important

If you have to remind yourself to pay your bills and put aside savings every month, you’re leaving too much to indecision and willpower. That’s risky because it’s not consistent. Instead, remove those choices from your mind by automating them.

You can automate the following:

• Savings: When you get paid, automatically set aside a portion into savings, even if it’s just $15. Many companies that offer direct deposit allow you to split your paycheck into separate accounts.
• Bill payment: Automate all of your bills so you don’t have to think about whether to pay them or not. This will also help you avoid late payment fees.
• Debt repayment: If you’re paying down debt, such as student loans or credit cards, set up extra payments after you get paid, so you’re slowly tackling the debt level in addition to the required monthly payment.
• Retirement: The sooner you start saving for retirement, the more you can benefit from compounding gains. Set up an automatic contribution to your employer’s retirement plan, such as a 401(k) or similar plan. If they don’t offer one, set up your own, such as a traditional IRA or Roth IRA.

4. Create an Emergency Fund

Setting money aside for unexpected expenses is imperative for good financial health. If you lose your job, break your computer, or get a large medical bill, you may need to rely on debt to pay/cover expenses. This could really hurt you financially.

Start setting aside money so you can pay for life’s surprises. Allocate money to an account that you won’t touch, ideally a high-yield savings account.

You can start small, contributing $50 or $100 a month, and slowly build it up. Ideally, you want to be able to cover three to six months of expenses. If you end up using your emergency fund, make it a priority to build it up again.

“Bankrate’s Emergency Savings Report shows that most Americans (59%) cannot afford a $1,000 emergency expense, but 37% of Americans needed to tap into emergency savings in the past year,” says Russell.

5. Build Credit Correctly

Borrowing money isn’t bad if you do it correctly. In fact, building up a credit history is essential if you ever want a loan for a house, a car, or any other form of credit.

If your score is low, you can fix this. Here are some easy steps:

• Check your credit report: You can get a free one from one of three main credit bureaus (Equifax, TransUnion, or Experian) or annualcreditreport.com. Check it for any errors that are bringing down your score, and have those corrected.
• Pay your credit card bill on time: You should always pay the minimum to keep good credit, but pay more if you can.
• Adjust your utilization: If your credit utilization level is 30% or more, start paying down debt. You can use various strategies, such as the snowball method or the avalanche method.
• Build credit: If you don’t have any credit or if it’s very poor, and you can’t get a credit card to fix or build it, start with a secured credit card. Use that for just one bill and pay it off monthly.

“Making consistent, on-time payments is the single most important factor to building and maintaining a strong credit score,” says Russell. “Even one missed payment can significantly hurt your score.”

6. Cut Out Unnecessary Expenses

While trying to improve your financial situation, you don’t have to go full monk mode. Often, it’s easier to stick with a handful of small changes over time rather than drastically alter how you live.

“Don’t let extreme frugality throw you off course,” says Russell. “Allocating money for personal spending each month will allow you to experience some instant gratification. This can help make your plan more sustainable, and your day-to-day more enjoyable.”

If you can start by cutting out one unnecessary expense, you’ll be one step closer to reaching your goals. If you order out three nights a week, try to make it one night a week and save money by cooking.

If you’re subscribed to four streaming services, try to make it two. Rather than meeting friends in a bar, invite people over or meet at a friend’s.

The money you save from these adjustments can go towards building an emergency fund or paying down debt.

7. Be Kind to Yourself

Correcting your finances is not easy. You should take pride in yourself for attempting it, and acknowledge that there will be some mistakes. The point is not to be too hard on yourself: Accept that it’s natural, and get back on track as soon as you can.

It’s not about being perfect; It’s about improving your financial situation and making small changes over time. Over time, you’ll see how far you’ve come.

The Bottom Line

Getting your finances in order is about starting. You don’t have to have the perfect plan from the start or cover every aspect from the get-go. Making small, incremental changes over time will allow you to get control over money management.

Whether it’s automating your savings, cutting back on unneeded expenses, or creating a budget that fits your life, the key is to keep moving forward without being too hard on yourself. With confidence and consistency, you’ll be able to improve your finances.