The Five-Step Plan To Take Control Of Your Finances

A goal without a plan is just a wish.

Antoine de Saint Exupéry
A Five-Step Plan to a Debt-Free Life

Do you wish you could eliminate your debt, create some financial security and find the right approach to regain control of your finances?

The bad news is that wishing isn’t enough.

The good news is that if you’re reading this, you’ve already figured that out for yourself and you’re ready to move on to something more effective.

What you need is a plan.

A plan provides structure, objectives, step-by-step initiatives you can follow and milestones that you can use to keep yourself motivated.

Without a plan, what you have are a jumble of tips, hacks, tricks and ideas that, while each useful in it’s own small way, don’t add up to much without some kind of framework or plan to organise them.

I’m going to present a plan that you can follow to identify the steps you need to conver your costs, repay your debt, understand your finances and take control of your financial life.

Setting Expectations

I want to lay out a few simple (but sometimes painful) truths that make the difference between a plan that works and lots of wasted effort.

  • It takes time. You didn’t get into debt overnight, and you won’t climb back out of it with a few short days of effort. I’ll help you understand what you need to do and how long it will take, but then you need to commit to making the change, maintaining the effort and reaching the target.
  • It’s not magic. Reading blogs and browsing pinterest lets you pick and choose the stuff you most want to hear. “This one trick” that repays debt, “that special list” of things that will fix all your financial troubles. In the real world, simple math keeps things real, and hacks and tricks, useful as they may be in isolation, will not “disappear” several years of debt in a single sitting.
  • You are your own master. When you reach the goal and see that zero on your debt statement, you’ll know that it was achieved by you, through your own effort. That’s no small thing. Every step along the way, realise that each decision made brings you one step closer, or one step further away, from that ultimate goal.

It’s important to know how much effort something will take before you embark on the journey. The first thing we’ll do is figure out that roadmap. How long it will take. How much effort you can reasonably make over that period of time.

Once you can see the destination, it’s easier to stay the course. That objective serves as a constant reminder of your goal.

It’s important to know why you’re doing this. Combining a target with a good reason to get there is most of the battle. Are you making sure you can provide for your kids? Are you removing a financial burden that’s poisoning your day-to-day with anxiety and stress? Whatever your reason, you should spend a few moments identifying it, putting it into words and putting those words where they matter to you. In a journal, in your subconscious, in your prayers or in your conversations with family, friends or partners.

The Length Of The Journey

To stay true to your plan until you reach your objective, you need to know what you’re getting into before you start. That avoids getting discouraged along the way.

In the case of repaying debt, the size of the effort is measured is a shovel-to-hole ratio.

If the amount of debt is the hole you need to fill, and your available cash after all expenses at the end of the month is your shovel, then you know how many shovels (months) you’ll need to fill the hole (debt).

Along the way, there are important milestones, and you should note where these are and celebrate them as they are achieved. They could include :

  • Paying off your first debt
  • Paying off a given amount of debt
  • Number of months where you’ve hit your budget targets
  • New optimizations you’ve found that save more money and speed up the journey

The most important number, however, is simple: the number of months it will take before you’ve paid off your debt.

That’s the measure of the effort you’ll have to make to reach your goal.

The Difference Between A “Plan” and a “Hack”

This should be obvious, but it bears repeating.

You can save money by putting a brick in your toilet cistern to reduce water consumption, or shopping strategically to maximize discounts, or collecting and using a confetti-like assortment of coupons and vouchers.

These are all good tricks, and valid ways of saving a little money.

But they are individual tricks, hacks, tips or pieces of advice that help in one or another specific area. On their own they will not lift you out of debt, drive you to early retirement or transform your financial outcomes.

Many are not long-term sustainable unless you make a lifestyle choice out of them.

A plan is a path from where you are to where you want to be, and a measure of what it will take to get there. It tells you what to do, if you’re on track, what you need to change and how much is left before you’re reached your goal.

Hacks are cool and fun because they make us feel like we’ve optimized our lives in intelligent and interesting way, but they cannot replace a plan, they are only really useful as part of one.

Is This The Right Plan For You?

If you like this plan and think you can make it work, then yes.

There’s nothing particularly special about the steps I’ll outline below. They’re common sense and fairly straightforward. If you don’t know where to start, then starting with this plan will help move you in the right direction. You don’t have to stick with it if yuou find something better along the way, so long as you don’t give up.

Nobody out there has “the one solution” that works for everyone. Each person is different and your character, motivation, determination and tenacity will have more of an effect on the outcome than the exact plan you choose to follow.

I provide this plan to help you start thinking about how you want to manage your situation. You can apply it, or you can adapt it, or you can read it and then do something else. Ultimately you are responsible for the method you choose to use to manage your financial situation.

Five Steps to Taking Control

This plan is designed to help you take control of your finances when you’re having a hard time getting a handle on them. It’s about going back to first principles and taking things one step at a time.

The five steps are a logical progression from not having any control and being in debt, to understanding and controlling your monthly spending and being debt-free. It’s a map you can follow, but you have to take the steps to get there.

The plan is not about becoming financially independent. That’s a more ambitious goal. If you get to the end of this plan, then you will be in a good position (and you’ll have learned lots of valuable lessons) to embark upon that journey also.

Step One – Covering Your Costs (or the ‘Minimalist Budget’)

The first step is to understand your daily, weekly and monthly needs. The costs you can’t avoid paying. The minimum amount of cash you need to spend every month just to get by.

Step one will take a couple of hours, assuming you don’t have this information to hand already.

Take all your bills for the last month, from your bank statement, from bits of paper, from memory if necessary. On a piece of paper or in a spreadsheet, lay out all the amounts you spent on important and unavoidable things.

It’s important to be disciplined about this. The work lunches at the nice deli are not necessities, neither is the morning take-away coffee. Do you really need the nanny? You certainly never need to go to the restaurant. There should be no luxuries or optional spending in there at all. Pretend you’re living on no money at all and you need to keep every penny for essentials. You should cut groceries as much as you practically can without going hungry. You should make the minimum payment on each debt.

This number should be significantly below your monthly income. It tells you what your minimum survival spend is.

To reach this spend, you would have to unpack the “hacks” toolkit and apply every trick you can, from meal planning to switching utility providers.

Don’t try to live on this amount, it’s a theoretical minimum that’s not sustainable long term, but knowing what it looks like is a necessary first step to the five-step plan.

Step Two – Build A Monthly Budget

Startign with this bare minimum spend, you can now build a realistic budget that you could live on without hardship. We want to design a monthly financial plan that saves you money but is also manageable for an extended period of time. Don’t try to get it right first time, work it out and you’ll fine-tune it as you go.

To do this you take the budget from step one and add a few reasonable items. You might include a monthly sum you set aside for a holiday each year, or some activities for your child.

Then you’ll build a monitoring and tracking system that allows you to stay within the budget each month. This may involve spreadsheets, it may involve envelopes, whatever works for you.

The idea here is to create a budget you can stick to for a sustainable, long-term effort. Too much pain and you’ll give up before reaching your goal. Too little effort and you’ll never reach the end of the process. That’s the trade-off. The more you save, the faster you pay off your debt, but the harder it is every day. The less aggressive you are with your budget, the longer it’ll take you, but the less painful it will be on a daily basis.

Find your own balance, but keep luxuries out of the equation as far as you are able.

Step Three – Build an Emergency Fund

Once you’ve built the budget and you’ve started living according to its limits, you should be throwing off some extra cash each month.

It may be tempting to immediately start paying down some debts, but there’s a very important step that comes first. You have to build your rainy-day fund, your emergency savings account.

When you’re paying off your debts and trying to stay within a budget, something will eventually occur that will throw your budget plans into disarray. Some obligation you cannot possibly avoid, such as travelling to a sibling’s wedding or facing some unexpected medical bill.

If you are not prepared for this, it will knock you off the path to financial stability and you’ll never get back on. You need to be able to absorb unexpected shocks.

So you’ll set the size of your initial emergency fund to two month’s costs. Open a separate savings or current account (you need to be able to access the money quickly), label it “Emergency Fund – Do Not Touch”, and pay the maximum you can into it every month until the amount in the account is the amount of your budget for two months.

That means that if your income were to disappear for two months, you’d be able to get by without changing anything. This should give you significant peace of mind.

You can grow this fund larger if you prefer, but I’d suggest never letting it dip below 2 months of costs.

Step Four – Pay Off Your Debts

Snowball? Avalanche? Who cares? Whatever method works for you. Once your emergency fund is topped up, all the spare cash you have goes into paying off your debts. One at a time.

Your minimum payment on each debt is part of your core budget. You must pay this every month to remain in good standing with your lenders. With what remains, you should then be paying as off one debt as fast as you can.

Which debt should you focus on first? I said, “who cares” above, but actually it’s an important decision.

If you have any particularly high interest debts (such as credit cards), these should be tackled immediately.

You should then choose to either pay the smallest sized debt or the highest-interest debt off. You’ll save a little money overall if you pay off the higher interest debt first, but it’s more motivating to pay off one debt entirely. So if you’re keen to tick one off the list, pay down the smallest debt first.

To organise this part of your journey you’ll have calculated a payoff calendar and you’ll know exactly how long it will take you to pay down each debt to zero.

This is the long and slow process of shovelling your way out of the hole of debt you’ve dug yourself into. What matters here is your shovel to hole ratio. The bigger the shovel (the more money you can free up each month after expenses), the quicker the hole will be filled (debt will be paid off).

Step Five – Set Up for the Long Term and Transition to an FI Plan

Once your debts are paid off, you need to avoid a bad rebound. When you’re tempted to buy something you can’t immediately afford, don’t do it with debt (a mortgage may be an exception to this rule). Even though you may choose to ease off a little or take a break, you mustn’t let the bad habits that put you in debt in the first place come back.

Now you need to decide where you go from here. If you are interested in being free of financial constraints in the longer term, you need to start saving for you retirement.

This is a good time to start, because you have all these good money habits you’ve developed while getting out of debt. Those same habits can help you build a retirement fund. I suggest no breaks and jumping right in.

This next phase, the path to financial independence, is less stressful and more fun. Everything you save is for your own future and security, rather than money given to a lender to pay down a loan. It’s much more satisfying. Through the power of compound interest, you can see it grow on its own as your investments bear fruit, which is the opposite of what used to happen when you were charged interest on your debts.

You’ll start by increasing the size of your emergency fund, figuring out what savings methods are best for you and redoing your budget to ensure you’re maximizing what you save every month.


You can take control of your finances, pay off your debts and reach a financially stable situation. Many have done it and the path is well trodden, but it is not easy or simple for all that. It requires discipline, determination and tenacity. You need to keep your eye on the prize and learn to control spending impulses that are likely almost unconscious.

But the prize is worth the effort. You’re probably conscious of the stress and anxiety caused by debt. You’ll be amazed at the sense of lightness and freedom that comes from no longer having any.

The plan is neither mysterious nor particularly innovative – it’s just an external reference or guide for what you need to do. This plan works. Other plans work too.

Click through to each subsection to see more detailed instructions for each stage of the plan and let me know in the comments if there are any questions, if you have any success stories you want to share, or if you have any suggestions you think I should take on board.

Become debt-free: a 5-step plan to a debt free life.