When it comes to managing our personal finances, it’s very easy to feel overwhelmed.  Here are some steps we’ve taken, over the past four years, so that we feel in control.  We have -

Established An Emergency Fund

I cannot overstate the value of our emergency fund.  On several occasions, we have had to deal with unplanned-for expenses.  Instead of borrowing money to cover said expenses, we have been able to dip into our emergency fund, and cover the cost of those expenses.  While getting out of debt, our emergency fund balance fluctuated between $1000 and $2000.  Now days, the fund sits right at nine months’ worth of expenses.  We keep our emergency fund in our ING DIRECT Savings Account. Dedicating ourselves to maintaining an adequately funded emergency fund may have been the smartest financial decision we have ever made.

Eliminated Certain Unnecessary Expenses

Please note the use of the word certain.  We still spend money on things that we don’t need, but we have eliminated much of the truly wasteful spending from our lives.  Finding a healthy balance between wants and needs can be difficult, but finding a healthy balance between acceptable and wasteful is not.  I’ll be brutally honest.  We used to waste a lot of money, buying things that we absolutely did not need, and in many cases, really didn’t even want, just because we thought we had to.  Now, we think about our purchases, and we try to apply some common sense to our decision making.

Eradicated Our Debts

The blog heading says it all – Debt Reduction Rocks – We Are Living Debt Free.  Four years ago, we decided to get out of debt, and we worked very hard, through several ups and downs, until we accomplished our goal.  I remember, as a kid, having to walk home from school.  I also remember the relief, even the joy, that I would feel, each day, when I finally reached our backdoor and was able to drop my backpack, filled with books, from my shoulders and onto the kitchen floor.  That’s what being debt free feels like.  My burden, which felt so heavy at the time, is gone.

Established A Budgeting Routine

If you want to feel less overwhelmed, and more in control, start living on a budget.  A good friend told me that, several years ago, and I wish that I would have listened to him then, instead of waiting so many years to get my act together.  We use a zero-based budget, every penny is accounted for, and our finances are so much easier to manage than they were in the years B.B.  (Before Budget)  We also created a filing system for our important documents, and committed ourselves to maintaining balanced checkbooks.

Eliminated Credit Card Use

We stopped using credit cards, and we really haven’t missed them.  Sure, we forgo some of the cash-back offers that certain credit card companies provide, but we more than make up for those missed rebates with the peace-of-mind we have, knowing that we will never again have to worry about interest charges, late fees, or lost payments.  I’m not trying to convince anyone to give up their credit cards, but I will say, if you are tired of your credit cards, or you feel that your credit card usage is out of control, it is possible to live without the silly things.  Personally, I think that everyone, during their debt reduction phase, should give up their credit cards, if only temporarily, so as to break the cycle of charging-paying-charging-paying-charging.

Eradicated Negative Voices

Okay, so maybe we didn’t completely eradicate them, but we did choose not to listen to them.  Instead, we surrounded ourselves with like-minded, positive, forward-thinking people.  I started this site, and connected with debt reducers from around the world.  As a couple, we found friends who were willing to give this debt reduction thing a shot, and we shared our journey with them.  Celebration and accountability have been so important to our success.

Eliminated Some Of The Stress

Let’s face it, personal finance management will never be completely stress-free, but we can work hard to eliminate some of the stress from the process.  Over the years, I have created a financial inventory for my wife, so she’ll know where everything related to our finances is located, should something happen to me.  I have also updated our term life insurance coverage and we now have up-to-date wills, stored in a safe location.  Taking care of these things, just knowing that they are done, really removes so much of the stress associated with managing our finances.

What about you?  What steps have you taken / are you taking, to gain more control?  Do you still feel overwhelmed?  What are you struggling with?  Where are you finding success?  Leave a comment and let us know.

For the visual-learners in the audience, I have diagrammed the flow of my money.

Regular income is deposited into my primary checking account.  Scheduled monthly payments are made, and allocations for non-monthly scheduled payments are then deposited in my online savings account.

Irregular income, such as it is, is deposited into my primary checking account, and used, if needed, for scheduled monthly payments.  If not needed for scheduled monthly payments, money will be transferred from my primary checking account to my online savings account.

Business income is deposited in my business checking account.  All business income is then transferred to my online savings account, set aside for non-monthly payments and long-term savings.

Any non-monthly scheduled payments are made from my interest-bearing checking account.  Money necessary for non-monthly scheduled payments is transferred from my online savings account to my interest-bearing checking account, as needed.

Contributions to Roth IRAs and Education Savings Accounts are made from my interest-bearing checking account.  Again, these contributions are first transferred from my online savings account, to my interest-bearing checking account, and then a check is written for each contribution.

I have it set so that I make all of my scheduled monthly payments on the first day of each month.  As soon as payments clear, I can then transfer remaining money to my online savings account, leaving a cushion in my checking account for unforeseen-expenses.  Not included in this diagram, but very important, is my envelope system, which I use for managing my cash, to pay for budgeted items like groceries and gasoline.

I am a big fan of the The ING Direct Orange Savings Account and I use it as my online savings account. I also use ING’s Electric Orange as my interest-bearing checking account.  Having both accounts with the same company, it’s very easy for me to make instant transfers.

For more about scheduled monthly payments and scheduled non-monthly payments, please see this recent article about how to create a zero-based budget.