Get Your Finances Back on Track: How to Do an Annual Financial Tune-Up

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Any job I’ve taken was usually just a way to save enough money to quit and do something more interesting.

And the six-figure income my wife and I briefly enjoyed from our internet publishing business is gone. So I’m no expert on how to get rich — and who cares? Money is a vehicle, not a destination.

On the other hand, despite rarely working full time and quitting dozens of jobs, I’ve never paid a bill late, my wife and I both have excellent credit and we always have money in the bank.

One of the ways I stay on top of things financially is to regularly review what’s coming in and going out, so I can tweak either side of the equation as necessary. You might call this process a financial tune-up — just like the one you give your car — and it’s worth spending a few days doing it at least once per year. Here’s how.

Step 1: Track Your Expenses

Nothing can wreck you financially faster than out-of-control expenses — that’s true even if you have a great income. You’ll find many stories of millionaires who lost it all.

So how do you control expenses? Start by tracking every dollar going out for at least a month each year, before you do the rest of the financial tune-up.

Jen Smith, also known as “The Millionaire Mommy Next Door,” agrees that tracking expenses is important. You might think that a woman who went from minimum wage work to being a self-made millionaire would no longer be concerned with expenses. But in fact, she tracks hers all the time, not just as an annual exercise.

Smith uses more than 40 categories, but I keep it simpler. I just write the following categories on a piece of paper and enter daily expenditures appropriately:

  • House
  • Car
  • Grocery and Related
  • Health and Medical
  • Entertainment
  • Things
  • Travel
  • Helping Others
  • Miscellaneous

You can add to that list, and if you see many expenses under “miscellaneous,” you definitely need more categories. After a month, add up the expenditures for each category, and calculate a grand total to compare to your total income.

What you see might surprise you, but writing everything down isn’t meant to make you feel bad about your spending habits. The purpose is twofold:

  1. To help you determine your values
  2. To gather information about where you can save the most money

The values part is subtle, but you might see a lot of money going to something you would be just as happy without. You might even realize you should be spending more money for things that are important to you. And seeing where it’s all going might be all you need to change your spending patterns.

Of course, you can’t stop paying for necessities, and you’re probably willing to pay for many discretionary items. But the information you gather can help you decrease those costs, which brings us to…

Step 2: Cut Ongoing Expenses

Financial writers separate discretionary and non-discretionary expenses, but the distinction isn’t always clear with household finances — is good food discretionary, since you could technically eat any food?

A more important distinction is automatic versus non-automatic expenses. For example, rent and cable bills come automatically, but you only pay for a concert or movie when you choose to go.

Automatic expenses are difficult to cut. A second car might be discretionary, but if you lose your job tomorrow, the loan and insurance costs keep coming automatically. If you’re not upside down on the loan, you could sell the car, but that takes time.

On the other hand, even if you spend hundreds of dollars each month eating out, you can cut that expense immediately. It’s another good example of a non-automatic expense.

If you want greater financial security, first try to eliminate or reduce costs that automatically eat your income. Here are some specific actions you might take:

We canceled cable TV a year ago and discovered we’re happier without it. We watch just five or six local channels using a simple $10 antenna. You might love your cable, but maybe you can easily eliminate some other expense.

Using your expense-tracking data, list every regular expense and look for ways to reduce or eliminate each one. But focus on reductions that won’t negatively affect your quality of life. The whole point of controlling expenses is to make your life more enjoyable.

Step 3: Cut Other Expenses

After you reduce your life “overhead,” look at discretionary non-automatic expenses. You might find ways to save money and enjoy life more.

For example, you could discover that you enjoy bag lunches in the park more than waiting in a restaurant line every day and scarfing down a meal before you rush back to work.

What’s important to you is your business, so there isn’t much else to say regarding decisions about what to cut or eliminate. But one purpose of the expense-tracking exercise is to understand exactly where your money is going so you can make those decisions more wisely.

Step 4: Increase Existing Income

Once you’ve spent a few days setting up your new, less expensive lifestyle, it’s time to look at your existing income and tweak it where possible. Here are some specific tactics to try:

Maybe you already have a side hustle. Maybe you sell something you make at an annual craft show. Maybe you have a rental property.

List every source of income you have and look for a way to increase it, even if just a little — it all adds up.

Step 5: Develop New Income Sources

You could get a better job to make more money, but income diversification offers more financial security, so consider other income sources.

These could include freelance work, business projects or little extras like rummage sales and selling unused clothes to consignment stores. Here are some other possibilities:

Putting It All Together

You’ll have to put a little work into this process, but it’ll pay off.

Tracking your expenses will take only a few minutes each day. Making a few phone calls can reduce regular expenses. You might identify one or two costly non-satisfying habits and drop them today. With a little effort, you might get a raise or a better bank account by next week. With some more effort, you could have a new income source by the end of the month.

And if you actually follow through on each of the five steps to complete this financial tune-up, you’ll probably be happy with the results.

Your Turn: Have you ever done a financial tune-up, and did you find ways to cut expenses and boost your income?

Steve Gillman is the author of “101 Weird Ways to Make Money” and creator of He’s been a repo-man, walking stick carver, search engine evaluator, house flipper, tram driver, process server, mock juror, and roulette croupier, but of more than 100 ways he has made money, writing is his favorite (so far).