The start of a new year usually fills our hearts with optimism and hope for a better future. I’ve always been fascinated by this phenomenon – why should this period inspire us to create lofty resolutions and ambitious declarations? Why do we anticipate that the fading old year will usher in bright beginnings?

There is no magic elixir that gets released on New Year’s Day; the first of January is just another 24 hours that will come and go, just like they did on December 31.

Despite our fervent wishes to exercise regularly, save more, be kinder to other people or pursue our dreams, chances are that after a few days of inspired activity, we will continue along the same old pathway as we did before.

The reality is that you can choose to transform your life at any time of the year. The date doesn’t make a difference; whether it’s February 28, April 13, or September 4, any day can symbolise that moment when you finally commit to do whatever it takes to effect the changes that you desire.

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If you’re desperate to turn around your money situation, today is good a day as any other to get started. However, wanting to change is just the initial catalyst. What steps do you need to take to begin your journey towards a healthy, prosperous financial future?

Last week we looked at the importance of creating the right mindset for achievement. One way to achieve a positive change of mind and attitude is through reading books or listening to CDs which teach success principles. Learning from others who have already traversed the path towards financial freedom can help you to design a detailed map to guide you along your own journey.

Look behind to move ahead

If you want to create a plan to improve your financial future, you first have to review your past and understand your present money situation. One resource that can be very helpful in carrying out this process is Suze Orman’s bestseller, The 9 Steps to Financial Freedom.

This financial guru’s book was a lifesaver many years ago as I searched for answers to improve my finances. Orman opened my eyes to how my financial past had influenced my current money problems, and was preventing me from having the prosperous future that I deserved.

Orman explains that to make the first step towards financial freedom, you actually have to think back in time to when you first understood what money meant. “Most peoples’ biggest problems in life… are directly connected with their early, formative experiences with money,” she asserts. Your feelings about money today – whether you fear it, enjoy it or hate it – Orman declares, can be traced back to an incident from your past.

Following Orman’s advice, I recalled a traumatic money experience that happened when I was eight years old. I was able to understand how those emotions had contributed to my financial challenges, and after dealing with my fears, I was finally able to move on. Today, I counsel many people to cancel the negative money messages from their past before they try to create an action plan for the future.

Be honest about your current situation

Orman describes how easy it is for you to be frivolous with money, especially when you use convenient forms of exchange such as credit cards or cheques. Many people are completely disconnected with their money, she reveals, and are clueless about how they spend it. Being aware about the state of your current finances is a crucial step in taking control of your future.

What does it cost you to live each month? Most people give the wrong answer to this question, Orman says, because their “planned spending doesn’t cover expenses that don’t occur every month, or expenses that just crop up.” Items such as insurance premiums paid twice per year, vacation travel, or dining out on special occasions, are generally not factored into your monthly budget.

You may feel powerless about money because you are underestimating how much money it takes to live your life. Orman’s solution to this confusion is to use your cancelled cheques, credit card bills or ATM statements to track your spending over the last two years. Then make categories for each expense and calculate the average monthly cost. Adding up each category will provide the amount you’ll need to earn each month to comfortably pay all your bills.

When I learnt this budgeting technique eight years ago, it was an eye-opening experience. Finally, I realised why I was dependent on debt – I was spending more than I earned. This detailed budget told me exactly how many expenses I needed to cut back on, or the amount to increase my earnings in order to get rid of my financial stress.

Over the years, I have used Orman’s budget advice to help hundreds of people understand their current money situation and create a solid foundation for success. To learn more about this essential financial strategy, please email cherryl@financiallysmartonline.com

Copyright © 2011 Cherryl Hanson Simpson. No reproduction without written consent.

Originally published in The Daily Observer,  January 6, 2011

Cherryl is a financial consultant and coach, founder of Financially S.M.A.R.T. Services. See more of her work at www.financiallyfreenetwork.com and www.financiallysmartonline.com. Contact Cherryl