Finance is an interesting topic. There is much to be learned from reviewing your past, present and future. Our financial goals are personal, but one commonality is our desire to experience financial freedom, but not everyone is willing to do the work to make sure their financial future is secure. It does take some effort on your part but financial freedom is worth it.
Know Your Current Reality
You have to know where you stand today before you can plan for the future. Plain and simple. This step can cause a lot of panic, particularly in those who know they have been living beyond their means. I sympathize but don't skip this step. You need to review your cash inflow and outflow and see where you need to make adjustments. I walk you through how to do this in Your Financial Foundation.
Create a Budget
I happen to love budgets but I know not everyone does.
To help motivate you to create your own and stick with it, I'd like to share a couple thoughts.
First, most people dislike budgets because they consider them too restrictive. I believe the exact opposite. Budgets give me freedom. The freedom to choose how I want to spend my money and to make sure my hard-earned money goes to the things that really matter to me.
Almost everyone has some waste in their budget, I'd rather root it out and direct it towards something I care about.
Second, create a budget that works for you. If you have significant debt, I do recommend that you start tracking every dollar you spend initially, so you can really see where your money goes.
But afterwards, create a budget that keeps you honest but doesn't drive you crazy and make you quit.
I love helping people figure out what they want to do with their money. To see their excitement once they allow themselves to dream and really think about how they want to spend their retirement or the legacy they want to leave behind. Be sure you take the time to figure out what you want (and not what others wants for you) and review those goals frequently.
They may change over time but the need to save for your goals never will. Plus, knowing what you're saving for makes it far easier to actually save your money.
If you have consumer debt, you need to immediately create a plan to eliminate it as quickly as possible. Debt is the killer of your dreams.
There are two ways to eliminate debt: save more and earn more. I recommend doing both. Trim your budget to the absolute necessities and look for ways to earn money from a job promotion, part-time job/side hustle, and selling unwanted things on Craigslist or eBay.
In order to avoid future debt, figure out what caused you to live beyond your means in the first place.
Money is emotional. Anger, envy, stress are just a few reasons why many people have debt. Once you know what emotions trigger you to spend, you can deal with them, rather than grabbing your credit card and going shopping.
Establish an Emergency Fund
One thing I know for sure is that life is uncertain. Things will break. People will lose jobs. Or get sick. An emergency fund can you give you the peace of mind that you are prepared to tackle life's uncertainties without derailing your financial future.
I don't recommend using a credit card as your first line of defense since it creates debt. Understandably, there may be times when you have no choice, but your emergency fund (3-6 months living expenses ideally) should be the first pot you dip into when emergencies arise.
Some people are intimidated by investing. They think you need to be rich or a financial expert to become an investor. Neither is true. These false beliefs cause many people to delay investing, which is a mistake.
Time is your best friend when it comes to investing. You do need to educate yourself so you have a baseline understanding of investing, but you don't need to be Warren Buffet either.
The first place most people start investing is through their 401k at work. It's a good place to start as your contributions are drawn automatically from your paycheck (eliminates any chance of you spending the money) and hopefully your company offers a company match. As you become more investor savvy, you can look at additional investment options.
Proper Protection Coverage
We insure our homes and cars. Perhaps our wedding ring or a one-of-a-kind collectible.
Yet, I see so many people gamble with their financial future by not insuring their lives.
Many years ago, I had a client who politely declined life insurance every time I pointed out that it was the one piece missing from his financial plan. One meeting, he finally agreed with me. Not long after his policy went into effect, I received a call from him. He had been diagnosed with cancer and only had a few months to live.
I had the chance to meet with him and his wife one more time before he passed away. Before I could even say anything, he simply said, "Thank you."
He thanked me for not giving up on him and pressing the issue. He thanked me for giving him the peace of mind knowing that his family was going to be taken care of after he was gone.
They could stay in their current home, pay for their daughters' college education and weddings just as they always intended. It isn't always easy confronting our mortality, but I know that if something should ever happen to me or my husband, our family is taken care of and nothing matters more to me than that.
What steps are you taking to secure your financial future?
Shannon Ryan, CFP® is a Mom on a mission to help busy parents teach their children simple, value-based principles that guide their money decisions and support their long-term financial well-being. Shannon wrote The Heavy Purse to help parents start money conversations with their children through a fun, bedtime story and developed companion workbooks to help deepen those conversations. Visit TheHeavyPurse to learn more on how to raise Money Smart Kids.