Plan Your Own Damn FinancesOctober 7, 2015
These days, there’s any entire industry of financial professionals who claim that planning out your finances is risky business, but here at Save Money Dammit, we know the truth.
Planning out your finances doesn’t require a fancy degree. It doesn’t even require solid math skills (though that doesn’t hurt). It requires (re)learning how money really works, the role it plays in your life, and how you can make it work for you.
“What do you want?”
Before you go out and buy the hottest personal finance books, hire a slick financial advisor, and cut up your credit cards, it’s crucial that you ask yourself this most basic question:
What do you want out your life?
Do you want to be a world traveler? Do you want to retire before you turn 65? Do you want to have more time to spend with your family? Maybe you want to pursue a career goal or lifetime passion.
If the first answer that pops into your head is “I want to be filthy rich”, then start over. That’s not a goal. What happens when you become rich? Without a plan, you’ll just blow your money and be back to square one.
To begin navigating your financial life, you must know where you want to go and plan realistically. Knowing this, you’ll be able to make better, more informed decisions about what to do with your money.
Find a money mentor
This probably shouldn’t mean finding a financial advisor. For the most part, financial advisor’s aren’t your friends. Instead, find one of the many great personal finance bloggers out there and follow their lead.
You may ask, “why would I listen to an ‘unqualified’ blogger when I can get advice from a trained financial professional?”
It’s simple. Most personal finance bloggers are driven by passion, hustle and a true love for all things personal finance.
Bring up any personal finance topic to one of us, and we’ll happily talk you to death about it. We love this stuff, and we spend loads of time and energy learning everything we can about it. Financial advisors, on the other hand, are typically driven by a desire to gather clients and ensure that those clients are providing a suitable cash flow. That’s not to say that all financial advisors are like this — they’re generally pretty great people. It’s just the fact that for them, it’s helping them pay the bills, and that comes with a different set of priorities over someone who does what they do simply for the love of the game. While there are a few personal finance bloggers out there who make a living doing this, it all began with passion.
Here are a few of our money mentors:
- J Money at Budgets are Sexy – a master of community, hustle, and rockstar finance.
- Mr. Money Mustache – the early retirement guru. He retired at 30, and has been living the good life for over 10 years now.
- Go Curry Cracker – retired early and travel the world with their family — a truly amazing story.
- Listen Money Matters – two awesome guys with an awesome podcast. Kick back and enjoy some talk about beer and money.
And of course, it’s our hope to be your money mentor as well! It’s you, our readers, that inspire us to keep learning and sharing our story every step of the way.
Determine money’s role in your life
Sadly, most people are totally shackled to their bad money habits. Money is in a constant flux of incoming/outgoing with nothing left over at the end of the day. Not only that, but their bad habits have chained them to a desk at a job that they hate, and they live in fear of losing their source of income. A bad month could totally wipe out what little financial stability they have.
When you begin to take positive actions like wiping out debt, building a solid investment portfolio, or stocking up a nice emergency fund, you’ll find that you might not think about money quite so often. In fact, managing your money may even become… enjoyable?
When handled properly, money is merely a resource that affords you the opportunity to pursue your true goals. It’s not a life raft. Money shouldn’t be viewed as your source of happiness, and it shouldn’t bring you misery. If either of these scenarios are present in your life, you’re managing your money improperly.
A good long term money strategy should conclude with you all but eliminating your need for a continuous stream of money. The best financial gift you can give yourself is the gift of not worrying about money.
This is derived from a quote from my personal favorite historical figure, Theodore Roosevelt.
Get action. Do things; be sane; don’t fritter away your time; create, act, take a place wherever you are and be somebody; get action.
To master our money, it takes grit, and a hungry desire to make a difference in your own life so that you may make a difference for others.
In a practical sense, this means no longer giving yourself excuses for your past financial decisions. For instance, take action towards clearing your life of debt so that you can start moving forward. Don’t hold on to those credit card balances; carrying student loans throughout your life isn’t okay for your financial health, and it only gets harder to get rid of them as time goes on.
To begin taking action, we offer up our own spin on Dave Ramsey’s baby steps:
- Determine your Net Worth. We recommend using Personal Capital for this. Know every penny!
- Build a $1,000 emergency fund. You must first discover your ability to save money.
- Crush your debt (minus the mortgage). It’s holding you back from the exciting future steps. Get rid of it.
- Build a 3 month emergency fund. Increase beyond 3 months if you so desire, but don’t let it distract from the next step.
- Invest every penny that’s not nailed to the floor. If you don’t know where to start, open an account with Vanguard or Betterment and start contributing. If you choose Vanguard, you might want to check out the Top 8 Vanguard Funds by our friends over at Listen Money Matters.
- Build a +50% savings rate. This is where things get good. You’ve eliminated your need for constant financial stimulation. You live on less than half of your income. You’re investing the difference. You’re a money master, and riches are likely in your future (not that you need it, though).
- RTG. Retire. Travel. Give.
These steps don’t necessarily have to be your own personal checklist. For instance, you may want to pay off your mortgage early. We don’t have a mortgage, so we haven’t factored that in. These are our money steps for our own long term plan, and they best align with our personal life goals. Your list of steps should be no different. The best plan is one that’s made with your goals in mind. Lastly, don’t be afraid to switch gears along the way if your goals change.
How did we come to these steps? Hint – we didn’t consult a financial advisor.
My wife and I built this set of goals through trial and error, honest communication, good books, great bloggers (see above), and good old fashion curiosity when it comes to our money. We’ve currently achieved steps 1-4 through hard work and great encouragement from our friends and family. Getting out of debt in particular was quite an interesting ride.
The best decision you can make with your money is the decision to take control of it. After all, nobody truly cares about your own money as much as you do. With a little bit of curiosity and hard work, you have everything you need to make a successful financial plan for you and your family. Happy financial planning!