Can you relate to any of the following situations?
1. You currently have a significant amount of debt you’re carrying compared to most people your age.
2. You currently have student loans that have you feeling hopeless when it comes to paying them off.
3. You currently have very limited retirement savings and feeling unsure about retirement income.
If you can relate to one of these, or maybe some other type of financial situation, do not worry friends. While you might not have your finances figured out, you’re also not alone. This is something that I talk a lot about on my own blog, The Little Dollar.
Did you know that nearly one in three Americans feel they don’t have a clear financial picture?
Alright, maybe that doesn’t sound overly optimistic or like it’s helping one bit…
But the good news in all of this is that by no means are you stuck where you currently are.
Sure, getting control of your finances can be a tough thing to get started on. This is especially true if you’ve never taken the time to put in the work.
Today I have 5 tasks for you that you can take with you anywhere you go to start road mapping your financial future and improve your financial understanding almost immediately.
- Start with a budget
- Track your spending and analyze it
- Categorize your expenses.
- Track your Net Worth
- Use the FREE tools offered by Savology
Let’s get to it.
1) Start with a budget
The foundation of rebuilding your personal finances usually starts with budgeting.
Looking at your income, expenses, and building the short-term plan for your money will help you see your day to day spending habits.
To build a proper budget you will want to look at a specific period of time, perhaps a monthly period is the best used time frame for beginners.
By doing so, you can see your paychecks come in, any residual income, or even if you use a side hustle income to pay for your lifestyle. This will help you scope out what expenses you can have and what ones you already are spending on.
Most Americans have no idea they spend more than they actually earn and soon find themselves deep in credit card debt and feeling trapped.
Having a budget will guide you to start moving your money and financial life towards your goals.
P.S. you can use this monthly budget calculator to get a quick and accurate snapshot of your monthly spending habits.
2) Track your spending and analyze it
You’ve built your spending plan showing you where you make ‘X’ dollars and spend ‘Y’ dollars. Now it’s time to start digging into every single dollar you spend. If you bought a $3 coffee, track it on a spreadsheet, a piece of paper, or even a budgeting app if you’re using one.
This allows you to get very specific with your spending and see where your money goes each and every time you spend it. If you’re looking for a good reason to stop spending, this will prove to be a very eye-opening exercise.
If you are forcing yourself to write down every transaction when you spend the money, eventually you’ll get tired of writing it down and will want to cut out that spending entirely. This requires a tremendous amount of self-discipline, but it will help you focus on spending on your needs rather than wants or impulse purchases.
When you’re analyzing your spending, take a look and see what small transactions are adding up at rapid rates. Chances are that you will soon find out that the biggest waste of your money is not coming from those $50 or $100 planned purchases. Rather, it can oftentimes be the $3-10 eating out 2-3 times a day that compounds and ends up being very harmful to your financial health.
Now, I’m certainly not telling you where or how you should be spending your money. But I am telling you that you will be very surprised at much these little expenses begin to add up and create a burden on your finances.
3) Categorize your spending
While you analyze your spending, it is also a very good time to categorize the money that goes into each expense. Personally, I like to print out a monthly bank statement, as I use my card for pretty much everything, and use it that way.
There are two methods you can use to help you complete this task; one is the Needs/Wants categories. If you invest on a frequent basis, I’d recommend placing that in a need bucket or in a separate investing bucket – this is what I do for my own categorization.
Your rent check or car payment that just got cleared? Those will go into your ‘Needs’ category. Those lattes and $7 tacos you always buy on the way home? Those will end up going into your ‘Wants’ category. By the way, I love tacos, so don’t ever feel bad about making those purchases.
The goal here is to see what percent of your money is going to needs, and what percent goes to wants.
If you realize that you are spending 50% or more on wants, you should look to find ways to cut that number immediately. The ultimate goal here is to reach a minimum amount of spending on wants and an optimal amount of spending on needs.
The second method you can use is the Saving/Investing/Expenses method.
Personally, I prefer to use the Needs/Wants method until I can get my wants down and manage my spending habits before optimizing my spending for growth.
A good goal for investing and saving can be 20% each, but the ultimate goal is to boost these numbers to a good rate and minimize your expenses.
4) Track your Net Worth
Chances are you have heard or seen some of the top business moguls bragging about their Net Worth but you haven’t taken much interest in it yourself.
Net Worth is really just a calculation of your total assets minus your total Liabilities. It is arguably one of the simplest financial concepts to understand, yet can be so impactful when understanding your financial health over a long-term period.
If you have any medical debt, credit card debt, personal loans, student loans. These are considered liabilities and lower your Net Worth.
On the flip side, If you own your home, have investments, cash, hard assets like gold or silver, or even rental properties. These are Assets and will raise your Net Worth.
An ultimate and never-ending goal should be to increase your Net Worth. You can do this by acquiring more assets and minimizing your liabilities. For example, paying down your credit card debt, paying off student loans, investing in your 401(k) or IRA, or buying a rental home to generate more income are all different ways of increasing your Net Worth.
5) Complete your financial picture with Savology
Doing the first four steps are really put in place to create good financial habits and to help you understand your finances better.
The next step is putting it all together and building a complete, accurate financial plan that will help you roadmap your future financial success.
There are really three options that you have:
Option #1: Try creating your financial plan yourself by existing templates
While this also serves as being a great exercise, you’ll soon find out that you will spend countless hours, if not days trying to piece everything together and make sense of it all.
Option #2: Use a traditional financial advisor to help you create your plan
Traditional advisors come equipped with the knowledge and expertise you’re probably looking for, but this can also be a very time-consuming approach. Chances are you will spend an initial hour or two going over everything, wait at least a week for them to compile and piece together your plan, and then spend another 2 hours or so going over your plan in detail.
Not to mention that this financial plan might end up being 40 pages long and costing you up to $2,500 depending on the advisor you go to.
Option #3: Build a free financial plan in 5 minutes using Savology
Personally, I was a little skeptical at first as well, but after going through the steps in literally just minutes, Savology changed any sort of skepticism into optimism.
After going through the financial planning survey, you get actionable tips, product recommendations, grading tools to see how you compare, and the chance to see your goals grow as you build your financial life up.
Your financial plan will provide you with detailed information on how to boost your situation and grow with it. You do not need to use the products that Savology recommends but the products are high-quality partnerships with your best interest in mind. I know this because I have personally used and reviewed many of the recommended providers that exist in the Savology platform.
So, if you’re looking for ways to grow your financial situation and get started on building your first financial plan, I would definitely recommend taking 5 minutes out of your day to make an impact on your financial future forever.
Your financial future starts today
Savology has helped more than 50,000 households improve their financial well-being through accessible, actionable, and effective financial planning. In free financial planning. In just 5 minutes, users can access our free financial planning platform, allowing them to build a personalized financial plan, holistic report card, and personalized action items. In addition to our consumer-facing product, we’re helping employers across the country provide their employees with effective financial planning and wellness benefits.