If you’re starting out to plan your financial future, it can get overwhelming. While many opt for a financial advisor to take care of the entire process, you can always handle your financial planning all by yourself (it’s simple, really) if you’ve got the right tools.
For starters, here’s what you need:
1. Set Goals!
Chalk out your goals—it can be short term, like paying off your card payment bills or long term, to meet expenses like retirement and your kids’ education.
Take a step back and do a reality check. Where do you stand now? How are your cash flows? How soon can you meet your expenses? Create a timeline to achieve these targets (and ensure you meet them!)
2. Do The Math
Calculate your total assets, after deducting the debts—and budget smart. Ditch your debt to stay away from piling on more to your list of financial risks. If you’ve got way too many debts to clear and it’s becoming increasingly difficult to keep track of them, here’s a great tool that comes in handy.
3. Build An Emergency Fund
Uncertainties can be hard, more so if they have a significant financial impact—be it an illness, job loss, or even global downturns.
To evade being stranded, ensure that you’ve built an emergency fund (a good start would be to keep aside six months’ worth of expenses), along with solid insurance coverage to back you up.
4. Hire The Right Agents
Apart from the general power of attorney, also ensure you lay out a directive in case a medical emergency comes up (if you’re incapacitated—we know, it’s not the best of thoughts to ponder over). To ensure you plan right, avail the services of an accountant, a real estate planning authority, and a medical power of attorney.
5. Earn Money On Your Money
The final step is to make sure you earn returns off your money. How’d you go about this? To start with, educate yourself. Read, read and read some more—research about what stocks, bonds, mutual funds, ETFs and other financial instruments do. Understand their risks, costs and how you can work on diversifying your investment.
It’s important to invest in something you understand.
Post this, set up your accounts to meet each of your goals—through monthly contribution plans, 401(k)s, low-cost index funds, IRAs or other savings plans. If all these details get you dizzy (or overwhelmingly hard), you’re better off with a financial planner who can do the research and investment planning for you.
INFOGRAPHIC: 12 Quick Ways To Save Money Every Month
5 Questions With Financial Expert Kara Stevens: Building The Right Money Mindset
Believe it or not, becoming a millionaire doesn’t take much capital. It mainly a mindset shift as it pertains to money.
In order to unpack how to do just that, we spoke to financial expert, journalist and author Kara Stevens from TheFrugalFeminista.com.
In this Q&A, we discuss money management, the emotional aspect of money, and why you must heal your relationship with it first before you can learn to have more of it.
Let’s just talk about it out the gate. What’s the biggest money challenge you see in the people you work with?
I see so many things when it comes to money challenges—from fear of looking at bills to avoiding having important yet difficult conversations with their family members about money. I’d say the underlying challenge is an ambivalent relationship at best and a harmful relationship at worst with money.
We walk around usually unaware of our thoughts about money so our decisions are on autopilot and unexamined. This becomes a problem when you have goals of wealth but your actions and thoughts work in opposition to those goals.
You mentioned “financial dysfunction” and bad money habits being passed down from generation to generation. What are some that you see and how do you break them? (feel free to incorporate own experiences here)
Some of the habits that I see include living beyond one’s means and using credit cards and payday loans to subsidize lifestyles.
That’s a tricky one.
I also see the other side. People who hoard money in fear of being poor and who ironically keep their money in a low-yield savings account that will eventually erode its purchasing power.
Or inflation, which literally eats your money alive. So how do you break the money dysfunction?
Breaking free of money dysfunction begins with awareness. You have to acknowledge that you have a problem and commit to change. Even when there are setbacks.
I think the next step is seeking help whether through reading and educating yourself if you’re a self-starter or seeking support from a professional or a mentor that can guide you through your goals and offer feedback and accountability.
And finally, I think creating simple plans and goals that can be easily achieved and tracked helps you stay committed and motivated to improve your relationship with money.
You talk about “the link between self-worth and net worth.” What do you mean by that?
Usually when people hear that, they think I mean that more money makes you better or feel better. That’s not what I mean. When I say there’s a link between self-worth and net worth with respect to how we treat money. In other words, when you realize that you are enough, so you don’t have to overspend anymore or hoard money because you’ve reached a level of financial security.
Almost like being at peace with who you are financially?
Yes. How you manage your money—meaning what decisions you make around spending, saving, giving, and investing. This message is specifically those of us with money management issues and not income issues. Money management is for those of us that have enough to meet our needs, but our spending decisions keep us from making progress in our finances.
In other words, building wealth.
Right. Income issues and issues around generating wealth stem from structural inequalities. For instance, gender-based pay gap, race-based pay gap, predatory lending and so on. There is definitely an overlap when the discussion is that they don’t have enough income to manage.
Your book is called Heal Your Relationship With Money. What is it that people need to heal and why 28 days?
I think people mostly need to heal their past financial trauma from childhood, across the board. Whether you lived in poverty or privilege, there may have been beliefs passed down to you that make it hard for you to overcome financial self-sabotage.
This comes in so many forms from buying the cheapest foods because you don’t want to spend the extra money, to believing that the opposite sex is your best financial plan.
Healing can happen in a short period of time—like 28 days—when there are actionable steps and accountability. The book offers the space to engage in deep metacognition—meaning thinking about your thinking—while simultaneously offering bite-sized and tangible action steps.
What’s the biggest piece of money advice you can give someone who’s starting from scratch and doesn’t know where to go?
I think the first place to begin is to take inventory of your money mindset. Assess and examine your thoughts and subsequent decisions that stem from that train of thinking.
In doing so, you’ll be able to cultivate financial self-awareness which you’ll need to replace those thoughts and actions with ones that align with your financial goals.
DIY: How To Improve Your Personal Finances
Even if you’re not looking for a property this exact second, you always want to be improving your position.
So, focus on the downtime to improve your finances, get your debt squared away, and put yourself in a better position when you are ready to buy!
It’s important to be sure of your financial position before you buy a property because you might find it’s harder to get that property than you would have originally thought.
Here are a few ways to quickly improve your finances to help you save more, pay down more debt, and qualify for better loans.
One of the most common reasons that people struggle financially is because they simply don’t pay attention to what is going on in their own financial life. If you are not paying attention, you can’t hope to know what is going on and therefore know how to improve matters.
So, the first item on your list is to start paying attention to your finances!
When I’m working on a project, I’m laser-focused on the budget, the details, the costs, etc. But, sometimes in my personal life, I let this slide.
The reality is, when we do have a budget and focus on sticking to it, our bank account balances grow so much faster than when we aren’t using one.
I love to eat out, and my wife loves to buy small things around the house. One day, we looked back over the previous year of spending and found we each averaged over $1,000 per month on our hobbies!
By pulling back a little in each area, we were able to save over $1,000 per month but still do the things we enjoyed.
So, start by having a budget!
Even if you are financially well off and can afford most of what you want, by budgeting for the items and spreading the costs out over several months, you’ll find that you buy less, spend less, and save more.
Also, if you budget to pay down certain debts faster, you’ll see those balances dramatically drop!
So, do not overlook the importance of a family budget.
Save On Other Purchases
There might be a number of other big purchases you need to make before you get hold of your next property, and it is a good idea to make sure that you are only spending as much on those as absolutely necessary.
For any big ticket items, we actually start searching for them months or even a year in advance. For example, let’s consider kitchen appliances.
As you know, a full set of appliances can easily cost $5,000-$10,000 if you are getting high-end products. It includes a fridge, double oven, gas cooktop, microwave/fan, and dishwasher.
The first thing we did was go to the store and decide on two or three brands, styles and product lines we wanted. It’s hard to compare prices unless you are looking at similar products between stores.
Then, for months we’ll watch these items and their prices. Occasionally there will be sales and by tracking the pricing all year, we know which sales are worth getting or not. When we feel we are getting the best price, we’ll buy.
And by doing that, we can easily save $500-$1,000 or even more.
We did something similar with our TV, computer monitors, etc. Basically, anything that is currently working that we want to upgrade. Over the course of a year, we are saving thousands of dollars.
You might also use a money saving app to help.
Saving money in all these places will make an enormous difference when it comes to saving for your next down-payment
Pay Down Debt
With all the money you are saving by budgeting and by planning out major purchases, you might want to use some of it to pay down debt.
You’ll have to decide if it’s better to pay down debt or have a larger down payment because both will hold you back on your next purchase.
But, generally, paying down $1/month in debt is worth about $3/month in income. At least, as far as loans are concerned.
If you do decide to work on paying down your debt, I fully detail a unique debt pay down method to get you into your next rental property faster.
Increase Your Income
Most people just focus on debt, but the reality is you can only cut your expenses so much.
Income, on the other hand, has unlimited potential. So, why not focus on growing your income?
Increasing your monthly income can be done in a number of passive and active ways, and it is worth looking into as many of these as you can to find the right one for you. I outline a number of ways to increase your income in this article on how to earn $10,000 per month.
While earning $10,000 per month in side-income might seem a long way off, it’s important to start! Even if you can earn an extra $500 month now, and grow it slowly over time, it’s worth it!.
Don’t Focus on Just One Thing
As I mentioned already, focusing on just budgeting, or debt paydown can be detrimental to your overall financial goals. It’s important to combine a number of different things into an overall strategy, which includes budgeting, debt paydown, and increasing your income.