“A journey of a thousand miles begins with a single step.” ~Lao Tzu
I love this quote because in this world of instant information at our fingertips, we need to calm down, breathe, and remember that all starting – no matter what it is – begins with but a single step. For those that are new to personal finance and money management, all the information can seem overwhelming. Perhaps to the point that you don’t even know where to begin – and therefore never begin. Where do you start with your money when you don’t know where to start?
This is a journey
You don’t want to be in the dark anymore about your money and where it’s going. You are ready to take back control instead of rolling with the punches. There is great news! You can totally do this! It is a journey. It will not all be accomplished today or maybe even this week. But when you take control, your financial stress and anxiety will be greatly reduced or eliminated. And your confidence will soar!
Know your income
You’d be surprised at how many people don’t have a clear idea of how much money is coming into their household each month. It’s crucial to know what is coming in so you can allocate your money accordingly. Your income not only includes money from employment, but also side gigs, child support/alimony, investments, real estate, etc. Our budget sheet includes many categories of income to get your juices flowing.
Know your expenses
There are two categories of expenses. Fixed expenses are the ones that don’t change. This can include your mortgage, insurance, and support you pay out, etc. Variable expenses are those expenses that vary from month to month. Categories can include groceries, eating out, and entertainment. Our budget sheet includes many categories of expenses. These categories are very specific so you know exactly where your money is going.
Know your savings
What is the balance in your savings account? Is it enough to cover at least 3-6 months worth of expenses? Perhaps you would feel comfortable with more of a cushion? The thing to think about is this: Do you have enough money in there that when you look at it, you don’t stress and you can sleep easier? If so, great! If not, start a transfer to your savings account. You can do this monthly, weekly, or to coincide with your paychecks. Furthermore, you can set up an automatic transfer so it is out-of-sight-out-of-mind.
Know your debt
If you have a lot of debt, this could be a painful step to take. However, I cannot stress enough how critical this is! Gather all your debt together. Get your statements, bills, etc (maybe even a glass of wine!). A site like powerpay.org makes it easy to input your information and get a pay-off plan going.
Create a spend plan
Now it’s time to put it all together! You just did a bunch of hard work! This is the part where you decide how much money is going to go to each category. What brings you joy? Can you allocate more money toward that? What don’t you really care about that you see you’re spending too much money on? Cut that! Your spend plan is your outline – your template – to get you to your money goals. There is a freedom in having a spend plan. That freedom allows you to NOT stress. You are in control of where every dollar is going.
Track, track, track!
Now, you know your income, expenses, savings, and debts. You have even created a spend plan. You know exactly what money goes where! Do your happy dance! You deserve it! I don’t want to burst your bubble, and I don’t want you to get frustrated and quit. So the next step is to find a way to track all your hard work. I’m sure you don’t want to set this all up and then have no way to monitor. There are several ways to this. Find one that works for you, or use a combination of different methods. There are great, free apps out there that help you. Or would you prefer the cash/envelope system? Are you a pen and paper kind of person and just want to carry a notebook? Do you love to geek out on a great Excel spreadsheet? (I do!) Just find a method – or a combination – that works for you and your life. When you find something just for you, you are more motivated to stick with it. It’s fun!
Some other things to think about
The above is a great outline to start you on your money management journey. Follow those steps and you are on track to achieving your financial goals! What else can you do for your personal finance journey?
Beneficiaries
I will always bring up checking your beneficiaries. You don’t want your loved ones to have to deal with additional stress after your passing. Check these now (and at least once a year) so the process can be smoother after you’re gone.
Insurance
Life insurance, disability insurance, auto insurance, long-term care insurance, and any other type of insurance you can think of. What applies to you, your life, and your situation? Make sure you are sufficiently covered.
Retirement
Are you setting your future self up for a comfortable retirement? Are you sufficiently funding your retirement account(s)? What do you see as your income needs in retirement? And what sources will you derive income from? Pension? Investments? Dual income family? Real estate? This list can continue. Since everyone’s life and situation are different, my only request is that if your employer offers a match, you are contributing at least the amount to maximize your match.
Education
Do you have children? Grandchildren? Nieces and Nephews? No matter the relation, if you choose to, you can set up or help contribute to an education fund. A 529 account is very popular. So are Coverdell accounts. If you are comfortable with your own money and money management, you may wish to look into helping the next generation out with their educational expenses.
Final Thoughts
Break this down into steps. Remember, all journeys begins with a single step. Do not try to do it all at once. Frustration will set in and you may throw in the towel. Find something quick to do to start. Have you automated a transfer to your savings account yet? That takes just a few minutes. Have you checked your beneficiaries lately? That shouldn’t take too long either. Pick one thing, do it, and then move on to the next thing.
Do you need help taking back control over your money instead of having your money control you? Check out Ford Financial Management and see if we are a good fit to work together. Schedule your free consultation appointment here or from our website.
