Get to the Root of Your Money Problems

Continuously overdrafting your checking account, running out of money before you get paid again, and having to dip into savings or use your credit card to make ends meet are all signs of serious money problems. Left unsolved, money problems can lead to big trouble. Foreclosure, repossession, and bankruptcy all stem from seemingly harmless money problems – ones you thought you could get under control but somehow could never correct.

Your financial well-being is too important to ignore or take for granted. When you first sense financial trouble, that’s the time to figure out what’s going on and make some changes, if necessary.

The best way to get to the root of your money problems is to track where your money is going. If you use your debit card for most of your transactions, you can go right to your online bank account to start categorizing purchases.

You can track your spending hand, writing down each of your purchases and giving them a category. Then, add up all you’ve spent in a single category to see if anything is abnormal. Many accounts with online access let you download your transaction history to financial software like Quicken or to an Excel file or a file that can be opened with Excel. Finally, you can use online budget software like Mint.com to pull your transaction and automatically categorize it for you. Pick the method that’s easiest for you to work with.

As you look at your transactions and totals for each spending categories look for abnormalities. What things are you spending money on that you shouldn’t be, especially items that aren’t essential to live? Have you started spending more money in certain areas? You can rationalize almost any purchase, but for your financial health, be honest about what you’re spending money on unnecessarily.

Once you’ve identified where your money is going, the next thing to figure out is why you’re spending more in that area. Sometimes the answer is easy, e.g. you’re spending more money eating out at restaurants because you’ve been too busy at work to cook dinner. But the answer isn’t always easy, for example, you may discover that you’ve been shopping for clothes more often because you’re stressed about changes in your life. Maybe you’re not giving your purchases enough thought.

The “why” of why your money is disappearing can be the hardest. It may require you to dig deep and really assess what you’re thinking and feeling as you spend money. This is also the most important step because it will really get you to the root of your money problem. Unless you fix the problem – and not a symptom of the problem – you may never get your finances right.

Money problems can often be corrected by getting back to the basics. Know how much you earn. Use a budget to plan your spending for the month and refer to your budget as you make spending decisions. Keep your spending below your income. Set financial goals, like saving an emergency fund, paying off debt, or building up a good retirement fund – build these into your budget. The key to figuring out problems with money is to start paying more attention to it. If you watch closely, it’ll be easier to see what’s giving you the most financial trouble.