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Step 3: Get Control of Your Money

Getting control of your money is about spending less than you earn and then using the difference to fund savings and investments to get the miracle of compound interest working for you.

Ideally, you should aim to spend less than you earn most months of the year. If you already do this, you should be well on your way to financial freedom.

If you don’t, there are many ways you can either increase your income or reduce your expenditure. Some can be relatively easy, like switching to a cheaper provider to get the same service for less money. Others will require a little more effort, like getting a part-time job, or taking one holiday a year rather than two.

Regardless of the state of your finances, though, you should know where you stand relative to your income and expenditure. The best way to do that is to draw up a budget.

Budgeting – the key to a healthy bank balance

Budgeting is neither as scary nor onerous as it sounds. To start, make a list of your regular bills and how much they cost you each month, and check your bank account for any direct debits or standing orders. This should give you a good idea of your main areas of expenditure. Don’t forget bills than might come in annually, like car insurance. And also make sure you budget for things like home repairs, clothes, Christmas, birthdays, and so on. There are plenty of budgeting programs available on the Internet these days, but using a spreadsheet is fine, too.

If you’re not sure where your money’s going, keep a spending diary: For a few months, make a note of everything you spend, even if it’s $30 for a coffee. At the end, add it all up to see how much you spend and where you spend it. It can be quite revealing!

Once you know your outgoings, it’s time to start trimming them. Most of the time, there’s no need to cut back on the things you enjoy. Instead, you can get better value for money for the stuff you have to get anyway. You may even find you’re paying for stuff you no longer use, like a magazine subscription or gym membership.

Trimming the fat – the same products for less money

Start trimming your outgoings by reducing one major bill each month, prioritizing the bills you pay on a regular basis. Most people can save thousands of dollars just by making a couple of switches. You shouldn’t have to look too hard, either…

Financial products
Changing your mortgage, savings account, insurance or credit card is often one of the easiest ways to generate some surplus cash. The Internet makes this process a lot simpler than it used to be, as pricing is now so much more transparent and you can switch online.

Utility bills
You can often find savings on mobile tariffs, broadband, fixed-line phones, pay TV, and so on.

Smart shopping
Fancy a break? However and wherever you’re making tracks, you can save by shopping around before you buy. With dozens of online resources dedicated to finding the cheapest meals, fares, accommodation, and so on, there’s no excuse for paying over the odds for anything these days.

A final note on getting control of your money

Getting control and keeping control are different things, and there’s no guarantee you won’t fall off the straight and narrow at least once. When this happens, just take stock of why you fell – so you can learn from your tumble – and calmly and proudly climb back on the horse.

Remember we introduced you to the miracle of compounded returns in Step 1? Well, miracle of all miracles, if you used the money you saved each month to fund savings and investments, you can get the miracle of compound returns working for you. From modest beginnings, you, too, could accumulate serious wealth.