If you’re looking for a magic formula that will get your finances in house-buying shape, here it is: Spend less than you earn, and pay your bills on time.

The problem is, we all struggle so much in our daily lives that we feel we richly deserve any convenience or nicety. And, perhaps we do. But while spending on all the little things may feel good at that moment, it’s hardly satisfying in the long run. No book or cup of gourmet coffee you buy today will comfort you in your old age the way a paid-off house and a fat stash of cash will.

The best thing about fixing your finances is it gives you options. You can buy a first or second home and perhaps move to any part of the country or even overseas. Or, you can invest your cash for the future and choose to rent.

But many Americans live above their means. They live from paycheck to credit card payment. They owe more than they own. They pay bills late, or not at all, and forget to file their taxes.

No matter how neglected your finances are, it’s never too late to start improving them. Here are some steps to take which, in time, should allow your credit to heal itself.

Be honest about where you are.

Start by taking a hard look at how much you have, how much you owe, and how much you’re paying on that debt. If you don’t know how much you owe, and to whom, or if you’re turning a blind eye to the severity of your financial situation, it’s difficult to take the steps necessary to turn things around.

Prioritize your spending.

If you spend more than you earn, you’ll never save up enough to purchase and maintain a home. By evaluating your every day expenses, you should find items in your budget you can live without. Try cooking instead of eating out or eating take-out, renting videos instead of seeing movies, and taking advantage of free things to do in your areas. Try spending your vacation at home, enjoying the beautiful weather, rather than flying or driving somewhere new. Give up a bad habit or two and watch your bank balance start to grow. Then, try to consolidate your credit card debt onto a less expensive card, then use the monthly savings to pay down your debt even faster.

Organize your finances.

Going through the shoeboxes full of information, bills, receipts, and bank statements will take a day or two. Once you get through it, maintaining a grip on your finances should take less than 5 hours per week. For bills, receipts and statements, try using an accordion file folder, writing labels for various categories of household and personal expenses. Keep separate files for medical documents, retirement and investment information, and appliance warranties.

Check your credit history and credit score.

If you want to buy a home and plan on applying for a mortgage, you should check your credit history and score ahead of time so you can see the potholes ahead of time. At myFICO.com, you can purchase a copy of your credit history and credit score for $12.95, and the accompanying documentation will tell you what you can do to improve your score. The best thing you can do: pay all of your bills on time and in full.

Don’t make any big purchases before you buy your home.

If you’re trying to buy a home, the last thing you should do is buy a car or a boat. Lenders will look at your debt-to-income ratio to decide whether you’re a good credit risk or not. By making a big purchase – and taking on more debt – just before you close on your home, you might throw your debt-to-income ratio out of whack and force the lender to turn down your home loan application.

Stay employed.

If you’re not steadily employed, it could count against you when you apply for a home loan. That’s because lenders know that homeowners who lose their jobs are more likely to have trouble paying back a mortgage. Lenders say it’s okay to make a lateral move to another company just before closing, or to accept a promotion in a different department of the same company. But don’t quit your job two weeks before closing. Your lender may yank your funding at the last moment.

Oct. 17, 2003.