The Master Plan to Get My Finances Under Control

No, going all in with your last £200 is not the way to go to get your finances under control.

How many of these situations can you relate to personally?

  1. After paying all my fixed monthly expenses (eg. rent, bills, loans), I would just have enough for me to get by until the next payday.
  2. When something unexpected came along that requires immediate cash payment (eg. flat car battery,  ad-hoc travel plans, getting sold into an MLM scheme) I have no choice but to borrow money from family or friends. Then I had to cut back some spendings the following months to pay back the money I borrowed.
  3. Day 1-10 after payday: eat like a prince. Day 11-20 after payday: eat like a pauper. Last 10 days before the next payday: don’t eat at all.
  4. Saying “I can just swipe my credit card to buy this new [insert expensive item that you can’t afford] and pay it off every month.” and not paying it until I maxed out my card.

The above situations were my own personal experiences with money. Like most average people, I grew up without being (formally) taught how to manage my money. Also like most average people, I’ve managed to get myself into many debt traps such as credit card, business loans and personal loans from friends and family.

I have learned a lot since then and am doing much much better now. That being said, the transition from ignorance to (more) enlightened was not a walk in a park.

So here’s a super-compressed version of what I did to get my finances under control.

 

The first steps

Own it. No excuses. Just own it.

  1. Acknowledge that I have a problem. And it’s a major problem.
  2. Acknowledge that I put myself into this situation. Celcom did not put a gun to my head and force me to get their latest iPhone deal!
  3. Realize that if I don’t do something about it soon, the effects will continue to get compounded and I might never be able to break out of this debt cycle until I retire (it’s troubling to learn that a lot of people use their retirement funds to pay off old debts).
  4. Take responsibility for my stupidity past actions and don’t run away from it. Answer the bloody phone calls from the banks. Know that the person at the end of the line is just doing their job. Let them know my current situation. Who knows they might be able to help me out. And reach out to people whom I owe money from and commit to paying back whatever I owe them. 
  5. Get educated. Watch Youtube tutorials and read articles on tips to manage my finances.

Own it. No excuses. Just own it. Only then can I move on to the next step.

 

Taking back control

I cannot stress enough how important it is to visualize where all my money goes to every month. 

  1. Start with the basics. Create a spreadsheet. Write down all my income and expenses. I cannot stress enough how important it is to visualize where all my money goes to every month (Check out this sample spreadsheet that I use for my income and expenses. Try to make sense of how I track my spendings. You can duplicate the sheet and use it to track your spendings. The items and values have been modified for obvious reasons 😀).
  2. Cut all unnecessary spendings. Think twice before making any non-reoccurring purchases. Do I really need the item? Can I borrow it from someone else? Will I die if I don’t buy this now?
  3. Consolidate all I-owe-you loans and plan to pay them off ASAP. Negotiate a win-win deal for both parties. At the end of the day, the most important thing to my creditors is that I pay off whatever I owe them.
  4. Cut all unnecessary spendings. Find cheaper substitutes for groceries. Find out if there are any excess spending from previous months (eg. uncooked eggs, things that I purchase in bulks) and only purchase the amount I need.
  5. Consolidate all you-owe-me loans and talk to my debtors to pay off what they owe me. Make them understand that I’m also in a tight situation same as them. Same as above – negotiate a win-win deal for both parties. 
  6. Cut all unnecessary spendings. Yes, I did a good job at work today. No, I don’t need to buy myself a green tea latte to reward myself.
  7. Sell off things that I don’t need. Go through all my stuff. If I haven’t used that item in the past six months, and I’m not going to use it in the next six months, sell it.
  8. Cut all unnecessary spendings. (I think I’m starting to see a pattern here…)
  9. Pro tip: Empty all your coins/ RM1 notes/ RM5 notes every day into a piggy (or camel) bank. You’ll be surprised how much those add up over time!

By just doing the above steps, I managed to reduce my debts significantly and can finally see ++ in my bank account. But I didn’t stop there. In today’s unpredictable economic climate, having positive cash flow does not guarantee future financial stability.

 

The next steps

  1. Find ways to expand our income. This is one of the easiest ways we can increase our savings every month. It can mean working towards a pay raise, taking up a second job, venturing into side business after working hours or during the weekends. For me, it’s doing some freelance gigs to earn extra money on the side.
  2. Save up to at least an equivalent to three months salary for rainy days. Some people might argue over this number. It could be higher or lower for some people, but from my own experience, three months is sufficient enough to cover any emergencies that may hit me financially in the future.
  3. Grow your money through various investments. I am not an expert in this field, so I’m not going to cover this topic here. You can consult a certified financial advisor to help you make the decisions on where to invest your money into. Tho a good rule of thumb is to not put all your eggs in one basket.

 

Conclusion

As you may notice, all the steps that I took were just basic stuff. One might also say that it’s just the most rational thing to do when you’re in debt and don’t have any savings. But most of us who’s in debt can’t commit to even the most simple things like not overspending because of our lack of self-discipline. That is why I believe The First Steps are the most crucial ones. 

It took me a few years to clean up my balance sheet (read 💩) but the end result is well worth it. At the date of this posting, I’ve managed to lower my monthly expenses, save up a portion of my salary every month and clear up all my debts, except for a few that I actually managed to turn around into a long-term investment (which I can cash out any time in case of emergency).

I can confidently say that it’s possible to get our finances under control because I’ve done it myself. And if there’s one thing that I can say to summarise this post, it would be to just be responsible with your spendings. Because the simplest way for you to save money is to spend less.

 

This post was written in response to a tweet that I stumbled upon a few days ago asking people to share their best money-saving tips.

Overcoming Distractions (Part 1)

Photo by Gilles Lambert on Unsplash
  1. We use distractions to divert our attention from life problems. It’s an escape we use to keep ourselves from going mad.
  2. So are distractions bad? Sometimes, no. Most of the times, yes. The problem is when those distractions become too overpowering that we procrastinate to deal with the problem, or worse, totally dismiss the problem altogether.
  3. Some of the obvious things that came to mind when we’re asked about the types of distractions nowadays include social media, computer/ mobile/ console games and television. But what most people don’t realize is that things like food cravings, friends and even our people pleasing trait can also be considered as distractions.
  4. The rush that we get when we post something to social media is comparable to the feeling when we pull the lever on a slot machine. And the feeling we get when we receive a notification of someone liking or commenting back to our post is comparable to hitting a jackpot on the slot machine. It is highly addictive.
  5. Television series are designed with cliffhangers at the end of their episodes to get people hooked. The convenience of on-demand streaming services means we can watch an entire season back-to-back.
  6. Hanging out with friends helps us feel a sense of belonging. Humans are social creatures anyways.
  7. We are easily distracted from doing whatever we are supposed to be doing because we have trained ourselves so well to be distracted. Therefore, most of the times, we need to overcome distractions so that we can get other stuff done.
  8. So we know the “what” – all those distractions mentioned above and more. But what about the “why”. What is the specific reason you want to overcome distractions? Do you have an assignment that’s due in a week? Do you want to go to the gym more often to buff out or lose weight? 
  9. Pro tips: whatever your motivation is, try to frame it so that the end goal sounds positive. Instead of saying “I need to submit the assignment so that I don’t flunk that subject”, try saying “I want to finish this assignment so that I can get one step closer to becoming a highly competent engineer”. Or instead of saying “I need to lose weight so that people don’t make fun of me anymore”, try saying “I want to live a healthy lifestyle and feel more confident about my appearance”.
  10. Now that we know the “what” and the “why”, let’s take a look at the “how”. The first step to overcome distractions is to become self-aware. The next time you’re scrolling down your social media feed or marathoning a TV series, pause for a second and take note of what’s going on. Think of what you were doing before that, how you ended up doing what you’re doing now, and what do you wish to get out of doing that activity. And most importantly – are you supposed to be doing something else instead? Be honest with yourself. This will help you understand the core issue of why you are distracted in the first place. 
  11. Take some time and practice being self-aware. Once you’re comfortable with judging yourself, you can take the next step to overcome distractions.

Stay tuned for part 2 of this post!