Personal Finance 101 – Learning The Basics Of Personal Financial Planning
If you are trying to learn about financial planning so you can manage your money like a pro, you are probably completely overwhelmed with all of the technical jargon in the financial field. I know that I was. When I first started getting my financial life in order I was completely overwhelmed.
This post will help you understand the personal finance basics that you need to learn to take control of your money.
Do you dream of being able to take a nice vacation without a huge credit card bill afterward? Do you want to be able to purchase your next car with cash rather than signing up for 5-6 years of payments? Do you want to begin preparing for retirement now?
I know it sounds crazy, but once you learn the basics of financial planning all of this really is possible.
Personal Finance 101
To get control of your money you have to start with the basics! I’ve broken this post down into 5 areas to help you get started.
Don’t overwhelm yourself, start small and then gradually begin to build up your knowledge base and financial skills.
1. Learn to pay yourself first
This is honestly my absolute favorite part of financial planning. Who doesn’t want to pay themselves a bit of extra money?
Here is the deal, the concept of paying yourself first means that every time you get money you should be setting aside 10% of your income for your future goals.
This is a non-negotiable point. You may have to start with a smaller percentage, but every single time you get paid, set aside money for yourself.
If you struggle to save money you should check out one of the auto-saving programs like Digit. I seriously love Digit, it makes saving super easy.
I used this money to fund my emergency fund and then began using it for retirement planning.
If you want an amazing book to read on this subject check out The Richest Man In Babylon. It is a simple 2-3 hour read that will literally rock your world. This was the first financial book I read in my early teens and I really need to thank my parents for giving me this book. I wasn’t smart enough to always follow the advice in this book, but the basic financial principles in this book really helped me understand why managing my money was so important.
2. Start Budgeting
I love budgeting! Many people believe that budgeting is limiting and confining and takes all the fun out of life. If this is you, then you are budgeting incorrectly.
At its heart, a budget is you telling your money where it needs to go, rather than letting your impulse purchasing decisions make the choices for you.
For example, if you have $50 budgeted for clothing, but find the perfect dress for $70, then you have to adjust something else in your budget to pay for the dress. You could choose to take lunch to work for a few days to make up for the extra spending or cut in another area.
More importantly though, if you take the time to think through the decision then most likely you just won’t spend the money.
The trick is to always be in control of your spending.
The most basic part of personal financial planning is dependent on you learning to control your money and set measurable limits for yourself.
Here is the little bonus that comes from budgeting.
You learn very quickly where all of your money leaks are happening. Once you really start budgeting and learning the basics of financial planning you’ll be amazed at how much money you were wasting.
You will seriously feel like you got a raise!
If you have struggled to budget your money in the past you may be using the wrong type of budget. I have been using the 50/30/20 budget over the last couple of years and have found it is a super easy way of keeping my spending under control without feeling like I have to micromanage every penny I spend.
3. Cut Your Costs
This part of financial planning goes hand in hand with budgeting. As I mentioned above when you start to pay attention to your spending most people are shocked at how much money they waste.
As you budget, you’ll naturally begin to cut costs.
Here is the fun part though, as you decrease your spending you are going naturally begin to look for other ways of cutting costs. It becomes a game, you want to beat your numbers every month and are always looking for ways to reduce your spending.
If you are trying to cut your costs I recommend starting with the largest items in your budget and then gradually work your way down the list. Sometimes it is simple stuff like calling your internet company and asking for a discount. Last time I called my provider it saved me $20 per month. It is amazing how quickly little cost-cutting measures can save you money.
Related Posts: How To Find and Eliminate Spending Leaks In Your Budget
4. Reduce your debt
Getting out of debt should be one of your biggest priorities. Until you get out of debt your income really isn’t your own. You are constantly stuck paying your money towards other people (which makes paying yourself difficult).
When my husband and I were trying to get out of debt, we went crazy with our budget and cut costs everywhere we possibly could.
We used any extra money we gained from cutting costs to pay down our debt as quickly as possible.
It took a lot of work, but we’ve been debt free except our home for 3 years and it was worth every sacrifice.
Being debt free has decreased our stress exponentially and allowed us to pay ourselves even more than 10% so that we have been able to hit some major financial goals in other areas of our lives.
I personally believe that one of the most basic pieces of financial planning is creating a plan of attack for your debt which includes cutting costs and living within a budget to make your dreams possible.
5. Start Saving For Retirement Today
When I was in my 20’s retirement seems a long way away. I made small contributions but didn’t take it as seriously as I should have.
While we were paying off our debt, we continued to contribute to our retirement plans, but not at the level we should have done. As a result, I’m in my early 40’s and don’t like the financial situation I find myself in.
To be blunt, I’m not where I want or need to be.
If I had just been a bit more diligent in paying myself first over the years I’d be significantly more prepared.
Many people never start contributing to retirement accounts because they are overwhelmed with options. They don’t know where to start, so they just don’t start.
#truthbomb – this is a bad idea!
Retirement planning doesn’t need to be complicated. I’ve recently begun using the Maximum Premium Indexing System offered by Suncor Financial and am completely blown away with how simple their approach to retirement planning is.
It is simple enough to where I’m in the process of getting licensed and should be able to begin selling their retirement products in 1-2 weeks. I’m so excited to be able to help my readers find a retirement plan that will actually work for them.
The Basics of Personal Financial Planning Matter
Personal finance 101 doesn’t need to be scary or overwhelming. All you need to do is start with the basics of financial planning. Begin by setting aside a small portion of your income every single month towards your emergency fund and retirement planning.
To make paying yourself first possible, begin cutting costs and using a budget to manage your money. As you cut costs, begin funneling the extra money you’ve found towards your debt.
As you work through this process review your current retirement plans. Now is the time to decide how you will begin managing your retirement funds.
Now just to be blunt, this all looks great on paper, it is a lot harder to do in real life. Here is the deal though, if you don’t start managing your money today, then you are just hurting yourself in the long run. I know it can seem overwhelming, but just keep it simple.
Every day make one positive financial decision.
- On paydays make the decision to put money aside for yourself.
- Review your current retirement accounts and see how much money you are paying in fees.
- Two days a week make the decision to bring your lunch to work to save money.
- List out your debts and make a plan of attack to get out of debt.
- Skip the movie or expensive entertainment options one night of the weekend.
- Create a meal plan each week to save money at the grocery store.
- Review your current bills and see if you can cut costs.
- Open a Digit account to help you begin saving money.
There are literally hundreds of small things you can do to cut costs and manage your money. The trick is to just make one positive change in your personal financial habit every single day.
If all else fails and you are still struggling to make ends meet then start a side hustle to earn some extra money.
Financial Planning 101
I know that you can do this! Now is the time to finally get your personal financial life in order.
When my husband and I got married eight years ago we combined our debt and realized that we had $446,000 dollars worth of debt. Now eight years later we have reduced that number to $104,000. We never could have gotten ourselves into financial shape if we hadn’t followed these steps.
I know how hard it is to say no and miss out on activities. I know how hard it is to wear old clothing and always shop at discount stores. I know how hard it is to constantly watch every penny. I also know how amazing it is to be on the other side and actually have a little bit of free cash in the budget. We still have a long way to go, but with the changes I’ll be making to our retirement planning I’m finally beginning to feel confident in our financial planning.
Please, take the steps now to learn the basics of financial planning and start getting your financial life in order. You will never regret making the choice now to begin managing your money.
Here is a link to my email address. If you are struggling to get your finances in order drop me a note and I’ll do whatever I can to help you.