When easy access to plentiful credit is gone and financial resources have been exhausted, people are suddenly faced with the realization that they are going to have to manage their money and potentially the way they live. Don’t worry, money management does NOT have to be painful.

Here are 7 HIGH-LEVEL KEYPOINTS to kick off a money management plan that I typically go over with my clients:

1. Get out and stay out of credit trouble. The credit card companies were created to put us in a compromised position so they can charge us more money, more fees, and higher interest rates. Put yourself in a strong position away from becoming victimized and abused by the credit card industry again – this means avoid using credit cards for discretionary items that could easily drown you with debt. Remember, the dirty secret is that they want your credit score to be low.

2. Determine and list out the types of assets you have. If you’re going to invest your money into anything, make sure they are income-producing assets. If you spend your money on cars and clothes and the like, you’ll find yourself getting nowhere in life financially, that’s an absolute.

3. Determine and list out the types of debts you have. How much do you owe in educational loans, credit card debts, home maintenance, etc.? Anything over 11 months is considered long-term debt on a Debt-to-Income worksheet and should be included. Paying bills on time doesn’t mean you’re on a budget and hoping everything will work out on its own is not a strategy! The reason that people don’t do this on their own is because they don’t want to confront this issue. However, this step is critical as it will enable you to know where you stand financially today and where to go next.

4. Determine your budgetary priorities using the bucket theory (identify and prioritize). The bucket theory is a budget system that enables you to prioritize your spending into 5 categorical buckets. Priorities from highest to lowest should be as follow:

1. The first and highest priority bucket represents financial security and includes an emergency fund and savings plan based on the concept of pay yourself first. 10% of your income should be allocated to this bucket.
2. The second bucket means food, shelter, clothing, and transportation. These are pay-as-you-go items and money spent on necessity items you’ll need to sustain life.
3. The third bucket contains family’s insurance needs including life, health, and disability insurance, property protection, and things of that nature.
4. The fourth bucket is quality of life such as money spent on holidays, anniversaries, birthdays, celebrations, etc.
5. The fifth bucket represents the investments, which inevitably, will become number one.

5. Write out your budget. This means to actually draw your spending out and figure out exactly what it is and how much you spend on each of the category above. Now let’s go to income. Is your total take-home pay required to sustain that budget…enough? And was it well over where you were able to allocate at least 10% to your emergency fund?

6. Balance out your budget. Having gone through all the expenditures, most likely, your budget will not balance and we now have to scale things back starting with discretionary spending. This is where the pain really begins. It’s easy to just poke fun and make jokes, but the reality is that when people are doing this, it’s serious. Now we have to go about getting rid of things to make this budget balance.

7. Manage Your budget. Managing your money day by day is a simple concept, however, is not an easy endeavor because it’s a human issue. My perception of a budget is not pure numbers. There’s so much psychology built into this, how people look at the numbers, how they manage their lives, etc. The goal is to control spending. This is where I teach my clients how to protect themselves from themselves so they can succeed with managing their budget.

The bottom-line is you can’t arrive at making the right decisions without thoroughly investigating and knowing where you’re coming from financially and this can only be done through proper money management. Money management isn’t “kind of” important, it is everything! With the proper steps and guidance, putting together a budget and learning how to manage your money day to day doesn’t have to be as painful as most people imagine it to be – the hardest part is getting yourself to do it.

The biggest accomplishment you’ll gain from it all is being able to know where you stand financially so you can take back control of your finances and ultimately, be able to establish a solid financial foundation for you and your family so you won’t be in a compromised position ever.