Do these words send you into a mini panic attack? Finance. Savings. Retirement. Debt.
Take a deep breath and keep reading. Even if you feel behind in the financial aspects of adulthood, there is hope for you. You can go ahead and tune out those “experts” who say you need to start saving in utero. Better late than never.
Whatever your financial situation is, please know there are millions of people out there who’ve been in a worse position than you and who’ve made it to the other side. It can be done. It is done —every day—by millions of people. They all had to start somewhere.
In your financial life, there are three levels of actualization: financial literacy, financial wellness, and financial independence. Simply get started in the right direction and you can make progress on all three at the same time.
Where should you start? I’ll break it down for you.
First things first, your finances need to work for you. Now is not the time to keep up with the Joneses.
Start with an assessment of your values. Your relationship with money should be all about supporting your ideal life. Most of us have a finite amount of resources and we need to make some choices. What do you want to spend money on?
If travel feeds your soul, put it at the top of your priority list. Is that weekly splurge at the mall just mindless spending, or is it more like “retail therapy” to fuel your metaphorical tank? Is there a hobby you set aside because you could no longer afford it? Put it back on your list. Now is the time to rewrite your money story. In your new relationship with your finances, money has one purpose: to power your ideal life.
Reflect honestly on this question: would you rather look rich or feel rich? This will tell you if you should spend your money on material things or life experiences. There is no right or wrong answer, nor judgement.
In addition to your priorities, many other personal factors will significantly impact your financial wellness and your best plan of attack, such as your income, age, family status, debt, assets, investments, risk tolerance, and much more. When managing your finances, make sure you are doing it with YOU in mind.
Google can’t tell you exactly what to do this time. If you do turn to the internet, be sure you’re working from a financial plan that’s customized for you, like with this free tool from Planswell.
This the scary part, but it’s oh-so-enlightening. To master your finances, you MUST know where your money is going. Tracking spending may sound like a depressing exercise, but what if I tell you that you’re almost guaranteed to find extra money?
In the day and age of subscription payments, you may be paying recurring fees for products or services you no longer need. Maybe you forgot to cancel a free trial. Maybe you’re paying for two Netflix accounts because you had to watch Tiger King immediately and you forgot the password on your original account. (Yes, I did that.) What seems like a low monthly payment can quickly add up through the course of a year. Before you know it, you’ll have some discretionary funds for your hobby.
Another reason to keep track of spending: mistakes happen. I’m not talking about the mini tuxedo you bought for your dog. That was absolutely NOT a mistake. I mean mistakes by other people. Human beings who work in billing departments make mistakes. If all of your expenses are set to autopay allowing you to bury your head in the sand, how will you know if you’re overpaying?
Autopayment technology is great, but it’s no excuse to tune out. I once had some costly cleanup to do when my credit card on file with the power company expired and I was in “ignore mode”. One day a few months later, I had to pay hundreds of dollars in late fees and reconnection fees to get my power back on.
When tracking your spending, be sure to include all of your recurring expenses like rent, utilities, car payments, insurance, internet, and cell phone. These are your fixed expenses. If you notice a big fluctuation in any of these expenses from month to month, you should investigate to be sure a mistake wasn’t made.
Variable expenses need your attention too. These are things like gas, groceries, bar tabs, and dog tuxedos. With a little awareness of your variable expenses, you’ll be armed with the knowledge you need to avoid bad financial choices. What qualifies as a bad financial choice? Any spending that doesn’t help you power your ideal life.
You’ll start asking yourself questions like, ‘Do I need that gym membership, or can I jog in the neighborhood?” Your new budget will practically write itself.
Once you’ve established where your money is going, it’s time to outline where it should be going. If what goes out every month is more than what comes in, it’s time to tighten your belt. Look at all your expenditures and figure out what can go on the chopping block. If your debt-to-income ratio is the issue, get professional advice on a repayment strategy. You have options.
If there is any one thing that can derail your good budget intentions, it’s an emergency. Your monthly budget must include an emergency fund to cover things like car repair, the veterinarian, or reconnection fees for your power company (facepalm). The pros will recommend you have three to six months of living expenses on reserve, but like everything else in your financial plan, the right amount is unique to you.
You can get started on the right path with your finances on your own, and the sooner the better. Like, now.
Keep going. Become a student of finance. Learn. Lean in. Work with a professional when you need advice or accountability. Even if you have a firm grasp on the fundamentals of finance, legit financial advisors have next-level expertise us civilians don’t have. When it comes to adulting, they’re killing it.