My Personal Finances are a Mess. I Don’t Even Know Where to Start!

In General Budgeting, Grandma's Jars by Phil McGilvrayLeave a Comment

Earlier this week I was meeting with one of my coaching clients.  She had done a brilliant job of getting her finances under control and was now wanting to refer a friend, but first wanted to warn me in advance:

“She has a good job but her personal finances are a mess, she is living pay cheque to pay cheque, her credit card is maxed, she has student loans and outstanding bills and she just doesn’t know where to start!”

I had to laugh at this description because it would accurately describe most of the clients I work with. While each person’s situation is slightly different the one common theme is:

“My finances are a mess and I don’t know where to start.”

It can be so hard to see your way clear to a stronger financial future when you are living pay cheque to pay cheque, constantly juggling the bills and trying to make this week’s pay stretch as far as possible. It is a very stressful place to be.

So where do you start when you want to turn your finances around?

Here are 3 powerful things I do with all my clients to help them get started.

Invest time in gaining an objective understanding of your situation.

This means taking time to truly understand:

  • what all your expenses are,
  • how much they are
  • how frequently they occur, and
  • where relevant when are they next due

You need to do this thoroughly. Most budgets fail due to lack of preparation, not because there isn’t enough income.

Once you have a comprehensive list of expenses you are in a good position to make a direct comparison between your income and your expenses. This is a powerful step in gaining an objective picture of your situation.


Once you can see these numbers in black and white you can step away from the emotion and clutter and make some purposeful decisions about your spending.

Good numbers are also the foundation you need to establish a successful budget.

Identify your shortfall 

When you are trying to turn your finances around, the biggest obstacle to your success is a nasty little thing I call the ‘Budget Shortfall”

The best way to think about your budget shortfall is this:

Let’s say you were to set up a budget today and that budget involved putting aside 1/12th of all your future expenses on a monthly basis. So if your car registration, for example, was $1,000 per year you would need to save $83.33/ month to ensure that when the bill turned up you had the money sitting there ready to pay it.

It’s a simple but effective system, assuming of course that your monthly income was enough to cover the monthly allocations to all your expenses.

So think about your situation, what is stopping you form implementing this brilliant budgeting system tomorrow?

Well, there are two things that consistently halt people in their tracks:

  • Firstly, if you are living pay cheque to pay cheque it is likely that you have bills and expenses that are either overdue or due today. Putting aside 1/12th from tomorrow is all a little late for these bills.
  • Secondly, it is unlikely that putting aside 1/12th is going to be sufficient to cover all your expenses because not all your expense are going to wait 12 months to get paid. What happens if your car registration turns up in 6 months? You will have saved $500 but find yourself $500 short of covering the bill.

It is the sum of these two things that create your budget shortfall. Everyone has some sort of budget shortfall when they first start budgeting,

It is this budget shortfall that keeps you trapped in the pay cheque to pay cheque cycle because instead of using this week’s pay to put aside 1/12th of your future expenses, you are using this week’s pay to cover yesterday’s expenses. As a result there is never enough for tomorrow.

So, the second thing you need to do is to calculate what your budget shortfall actually is.

Total up all your overdue bills and currently due bills, and complete the budget shortfall worksheet to work out how much you should already have set aside for your future expenses if you were to start saving 1/12th today.

So, let’s look at how this would work using the diagram below.

Using Bruce and Sheila’s numbers from the first infograph above, they earn $9,432, their 1/12th allocation to their future expenses takes $8,653 of this which leaves $778/month savings which can be directed towards paying down their financial hole. Their total budget shortfall is $3,800.

For most people this shortfall is a few thousand dollars.

Once you have quantified your budget shortfall you can get purposeful about getting rid of it. Could you sell stuff, take a second job, work some overtime?  Be creative, do what it takes knock this shortfall down fast.

Start looking forwards not backwards

As I have outlined above, most people are trapped in the pay cheque to pay cheque cycle because they are using tomorrow’s income to pay yesterday’s expenses.

To truly take control, you need to turn this around. You need to start looking and planning forwards. This means you must first allocate 1/12th to your future expenses and then use whatever is left over to pay down your budget shortfall.

By managing your finances this way, you are ensuring you will have funds set aside to pay for your future expenses as and when they turn up. It also means that your shortfall has been contained.

This strategy will require a bit of juggling for a couple of months however with each overdue bill you pay off, your shortfall gets steadily smaller.

It can be so hard to know where to start when your finances are a mess, but please be encouraged you can do it. Take a step back from the clutter and get a comprehensive understanding of where your money goes. With cold hard numbers comes the ability to set up a realistic budget and make wise and objective decisions about your spending.

You then need to identify your budget shortfall, as this is what is holding you back, keeping you trapped in the pay cheque cycle. Identify how much this is and then do everything you can to find the money to knock this this over quickly.

It will take a few months to put into place but please preserve, it truly works.

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