“You don’t have to be great to start, but you have to start to be great.”
– Zig Ziglar
School is out for the summer, so I thought now would be a great time…to welcome you to my class!
Welcome to Doing Money Right 101. Here are some of the most important—and sometimes, most overlooked—fundamentals of personal finance.
If you think you’re already a pro at money, know that these tips aren’t just for kids. They’re for anyone who is serious about mastering money.
1. Set goals and write them down.
So simple yet so powerful. Picture what your future self can look like and simply write down what you see.
Think personal, spiritual, relational, physical, and financial. The more detailed the better.
Now go back and do it again, but this time remove all self-limiting thoughts. Finish this sentence “If I had nothing holding me back, my future self would look like this”.
Your mind is so powerful. Napoleon Hill put it nicely when he said:
“Whatever the mind can conceive and believe, the mind can achieve.” The key is that your mind has to believe that you can achieve it.
One of the best ways to “convince” your mind of something is to write it down as if you have already done it.
And then write it again.
For example, if you want to make $100,000 per year you would write “I make $100,000 per year” as if you already do.
And then something cool happens. Your mind starts to believe it. And then your mind will start to think you are selling yourself short.
The next thing you will notice is that your number will move up, your goals will be stretched, your mind will start to believe!
This is important no matter what age you are. But if you are getting close to retirement, this becomes especially important. Without goals and a plan in place, you could find yourself drifting aimlessly.
2. Have a written budget, too.
When I got my first real job after college, I created a budget.
I found that the easiest way to create one was to simply track what I was spending for about 6 months. Don’t forget to budget the amount that you need to be saving and giving away to charity.
Once the budget was created I needed to focus on tracking. Back then it was paper and pencil but today it can be budgeting apps or Excel or any other digital tool.
Don’t make budget a dirty word. Determine what you need to give away, save, and then what you can spend. Stick to it and feel good when you have a surplus and spend it freely!
3. Automate things.
We all know we need to save for the future, but if you put yourself in a situation where you had to make a saving decision every time you received a paycheck, you most likely would set yourself up for failure.
On the other hand, if you make a decision one time to max out your 401(k) savings plan at work, you never have to make the decision to save into that account again.
Through the magic of automation, you will save with each and every paycheck.
This is a pretty neat way to save. Consider using this process to save outside of your company plan too. Anything that you can automate should increase the likelihood of your “savings” success.
Automate building up your savings account.
Automate savings outside of your 401(k).
Automate debt and bill payments.
The move automation you do the less you will get in the way of your success.
4. Compounding is your friend.
The longer your money is working for you, the harder it works. That’s the concept of compounding interest, and it’s the major reason why it’s better to save earlier than later.
Compounding can really work when you start early. According to LifeHack, saving $5,000 per year over 40 years–a total investment of $200,000–could result in over $1 million dollars with compound interest!
But sometimes compounding interest isn’t enough. You don’t always have 40 years to save for retirement, and over time, inflation will start to eat away at your savings as quickly as they can grow. To fight this, you need to become an owner.
This usually means investing your cash in places like the stock market, where it can earn a return that is over and above inflation. This sounds great, but it can also be intimidating for a lot of people; the stock market is a confusing, shadowy thing that few seem to really understand.
Don’t let that stop you. Once you have a plan in place and the patience to see it through, even something as seemingly volatile as the stock market can be used to your advantage. If you don’t know where to start, speaking with a financial advisor is a great place starting place.
Start saving early. If you didn’t start early, start now. Don’t wait another year to get your savings to the level that you need it to be. The longer you wait, the more you’re missing out on.
5. Check your balance.
You most likely have a checking account or credit card, but do you actually check your balance and account history on a regular basis? Do you take the time to look at the transactions in your account or just trust that the bank got it right?
Mistakes can be made, and it is up to you to catch them. Make sure you stay on top of things to avoid fees, mistakes, or, at the very worst—identity theft and fraud.
It isn’t enough to keep track of your checking account. You also need to keep an eye on your credit score, to make sure that the information being reported there is correct. If you see something, say something!
6. Debt will kill you.
Spend less than what you make.
Pay off your credit cards monthly.
Try to only pay loan interest on things like cars and automobiles. Never let your credit card go one month without being paid off in full.
7. Give 10 – Save 10.
There is always someone out there that needs money more than you do. Consider making it a habit to give away some of that you have earned.
I teach kids and teens to do this from the start. It doesn’t matter how little you earn, this concept still applies. Give away 10% of what you make from day one. Save 10% of what you make from day one.
If you simply follow this truth from the beginning, you may avoid encountering financial woes in the future.
“Don’t tell me where your priorities are. Show me where you spend your money and I’ll tell you what they are.”
– James W. Frick
I almost forgot the most important tip of all: don’t get discouraged!
Making great financial choices is not always easy. But I’m convinced that if they consistently do the things mentioned above, anyone can master money.
CLICK HERE to become an Insider! Join my Email Insider Group to receive weekly tips and tricks on finance, education, home buying, insurance, Social Security and everything in between. Byron W. Ellis, CFP®, CLU®, ChFC®, CRPC®, is a CERTIFIED FINANCIAL PLANNER™ professional and Managing Director United Capital Financial Advisers, LLC, a Financial Life Management firm. The information contained in this article is intended for information only is not a recommendation, and should not be considered investment advice. Please contact your financial advisor with questions about your specific needs and circumstances.
© Byron Ellis