When you think about money, how do you feel? Anxious? Stressed? Complete denial?

For lots of people, money isn’t just a taboo topic, it’s something to be avoided at all costs. And yet, with a little bit of sensible thought, your money can be made to work for you. In many ways, it doesn’t really matter how much you earn or whether you have a regular income or not. Making money work is about creating strategies to get you from one day to the next and one year to the next.

Here’s what you can do to start looking more carefully at your money, and turn your financial situation around.

Money is Functional

One of the main reasons that people feel unhappy about their financial position is that they focus on how much they want rather than how much they need. If you find yourself dreaming about winning the lottery while your spending spirals out of control, there are clearly going to be some problems soon.

Instead of thinking about how much you want, consider how much you need. This is a healthier perspective for two reasons: first, it gives you a more sensible aspiration to aim for; second, if you can manage to earn more, or save more, your aspiration can be exceeded. Everyone needs different amounts of money each month to achieve a happy lifestyle so working out how much you need will require an honest look at your finances.

Money is purely functional – it buys you things you need and want – so splitting it up into budget categories is a smart way to start managing it. A need is something you can’t live without such as your home, water, electricity, weekly groceries; a want is something that brings you pleasure but you don’t have to have it in order to live.

It’s all about finding the balance and ensuring that your outgoings match your income. This means that you must prioritize your needs over your wants.

Finding the Balance

To find the balance, first you will need to sit down with a large sheet of paper and your bank statements from at least the last 3 months, preferably 6 months to a year. This is a scary process for lots of people and it can be upsetting to see how you have managed, or failed to manage,  your money so far. However, opening your eyes to your troubles is the best way to get on top, so take a deep breath and plunge straight in.

First write down the cost of your needs, including: rent or mortgage, bills and groceries. Add up the numbers. This is the cost of your basic needs and the number you need to reach each month in order to survive. This is the first step in achieving financial independence.

Next, write down all your other expenditures into categories such as: dining out, entertainment and clothes. Add up all these numbers and then think about where you might be able to cut back, or where you could exchange one item for a cheaper one.

This exercise is all about finding where the balance is between your needs and wants. Ideally from here, you will be able to see where you could cut back, where problems may be emerging, and where thinking more carefully about how you spend could help you to plan for a very happy future.

Planning for the Future

If you haven’t really thought about your finances until now, you probably won’t have a plan for the future. Fortunately, there’s no time like the present to start thinking about it.

The first thing you should do is improve your credit score. This can be difficult, especially if you are saddled with high-interest debt already, but there are ways to help you back up. Start by working hard to repay your debts. This could be done with extreme saving tactics like a no-spend week, or you could transfer your debts to a different, lower interest credit card. Finding credit cards for low credit might sound like a challenge, but they are available and can be made to work for you.
Once your debt is resolved and you have a better balance in your finances, you should start saving some money each month – around 10-20% is usually advised but isn’t necessarily best – to create an emergency fund. And from there, you can continue to build your savings, start investing to earn a little more and create a financial future that fills you with hope, not dread.