Over 10 years ago, as newlyweds, my husband and I were fortunate to have two incomes, and we consistently met our monthly expenses. I didn't really think twice about how we spent our money. We had our company's 401(k) plans and a modest savings account that we contributed to every month. We also made some small investments in different mutual funds. Everything was great!
Until we suddenly went from a two-income household to a one-income household.
It was at that moment that I took control of our finances, started viewing our household as a business, and promoted myself to CFO of our home. I learned that these three tactics are key to getting your finances on the right track.
1. Create a Budget Plan
This is the starting point for companies (and people like you and me) to determine where the money is going. It might seem daunting at first, but there are so many free online tools and apps (such as Mint) that can help you create your budget and pre-define your categories of spending. Once categories like Rent/Mortgage, Utilities, Groceries, Dining Out, etc. are defined, begin estimating how much you want to spend in each category. This will allow you to set an expectation of what you think is manageable for your budget plan. The key here is to be realistic about what you want to spend!
Image Source: Mint
2. Track Your Spending
Now that you have a budget, review it monthly and find out if you're actually sticking to the budget you've assigned to each category. You might think this is a tedious step but it's the most important one if you want to gain control of your finances. The same app or online tool you used to create your budget plan will also track your spending, making it much easier to know where all your hard-earned money is going every month. In fact, most apps will even send you notifications if you go over budget in a category.
The key here is to rethink or readjust based on how you are actually spending your money. If you realize that you are overspending in a particular category - your partner buying the NFL package from your cable provider or going to the trendy new sushi restaurant four times a month - then start balancing your budget to either accommodate those costs or make the decision to adjust how you spend.
3. Plan Ahead
This is the most challenging part of running your house like a CFO. Like successful CFOs, you are going to want to project what your spending will look like in the future. Are there any big items you foresee wanting to spend money on, like an upcoming vacation to Turks and Caicos? Knowing what you plan to spend your money on in the future will allow you to adjust the budget you've created.
With these simple steps and some easy-to-use tools, you'll be well on your way to making sure you know where your finances stand and how you can afford that next big trip or that new smart TV. So put down that laundry, pause your binge-watching session, and get started in your new role as CFO of your home.