Getting started with your personal finances can be easy if you focus on these five topics and take it step-by-step
Getting started with personal finances can be intimidating. There’s so much to think about from saving money to investing and planning that most people avoid it altogether. It can be hard enough just putting food on the table, who needs the added stress of trying to work through a personal finance plan?
But not getting started on personal finances is the reason why 39% of Americans reported that money was the biggest stress in their life, according to a survey by Wells Fargo. Not knowing how to get started and how to stick to a plan were the biggest barriers to getting started.
Put off getting started on your finances and it will only get worse. A third of the retirees in the Wells Fargo survey said they felt more stressed financially than they did before retiring.
But it doesn’t have to be that way! Getting your finances in order doesn’t have to be something you avoid and can actually be pretty easy. I’ve put together one page of resources and the five major topics you need to think about.
Getting Started with Financial Goals
It all starts with your financial goals, where you want to be ten years and further into the future. Don’t worry, you don’t need a time machine or a crystal ball to think about your future – just take a few minutes to think about what makes you happy. What do you want to do more of and what might you be able to do if you had just a little more money?
I go a little further into common financial goals and the big things that most people worry about in Setting Financial Goals and a Budget. This was one of my favorite articles because I got to talk about my first money mistake and the importance of setting realistic goals.
Focus on the Big Stuff:
- Retirement planning
- Buying a house
- Financial cushion
Focusing on the big stuff for your financial goals will make it much easier to save and will bring your stress level about money way down. From there you can start building on with other goals.
The most popular article on the blog, How to Retire Early and Why it Won’t Matter, is a must read for anyone praying for a way out of the 9-to-5 rat race. Do you really want early retirement or just a way out from working a dead-end job you hate? You don’t have to be trapped until retirement, start working on your hobby-job now and retirement won’t look that great anymore.
Resist the temptation to jump right into the other four topics before you work through your financial goals. You wouldn’t start off on a road trip without knowing where you were going and you can’t plan out your finances until you know what you want the future to be like.
Getting Started with Budgeting and Saving
Nearly half (49%) of the people in the Wells Fargo survey said they regretted not saving more over the last five years. In fact, it was the biggest regret mentioned on the survey and a third of the respondents reported losing sleep over money problems.
Budgets are tough but it’s the key to getting started with your personal finances and meeting your financial goals. Most people think that successful investing is the way to meet your financial goals but the truth is that the money you save is the larger part of your total wealth, usually a much larger chunk than the money you earn on investments.
I’ve put together a free budgeting worksheet available for download and some tricks you can use to create a budget you’ll be able to keep.
- Take money out for saving first, not after expenses. Falling short means you’ll have to cut expenses instead of putting off saving.
- Put your expenses in order from most important to least, without the dollar amount. A lot of people pay for things that are unimportant to them because it’s just a few bucks a month. Ordering your expenses without the dollar cost shows you what you can cut even if it’s not a big budget item. Those little savings will add up.
- Set goals for saving and keeping your budget just for a few months at a time. Setting a short-term (three months) goal means you’re much more likely to stick to it and build some great financial habits.
PeerFinance101 is all about sharing your personal finance success stories and tips. That’s why I reached out to 40 of the smartest personal finance bloggers for their best tips on how to save money. Check it out for a great resource and some really interesting ways to save.
More than 70% of the people in the Wells Fargo survey reported learning their money lessons from their parents. Teaching your kids about money can be one of the best gifts you give them. I reached out to the same blogger list above to get their best ideas on teaching kids money saving tips.
I always hated the personal finance articles that talk about skimping your whole life just to save money. What’s the point of being an 80-year old millionaire if you had to live on nothing but oatmeal your whole life? Saving money is about getting the best deals for the stuff you want to do, it’s not about giving up on those things.
That’s why my wife and I swear by Groupon.com and its discount deals. Not everything on the site is a great deal but we’ve found some really fun activities that we wouldn’t be able to afford otherwise. Check out the site and plan something within your budget this week.
Getting Started with Debt and Credit
Debt is the reason a lot of people get into financial problems and avoid getting started on their goals in the first place. Handling debt isn’t taught in schools and the credit card companies don’t make it any easier, giving you all the debt you need to get over your head.
It sets debt up to be the bad guy in the majority of the blogs on the internet.
But debt is just a tool, just a channel to move money around. It’s how you use debt that’s important.
Without debt, most people would never be able to afford a house, a car or the money they need to get them through emergencies…but that doesn’t mean you have to pay double-digit rates and be trapped by your debt.
The first step to getting started with debt is to understand your credit report and learn how to increase your credit score. You’ve actually got three credit reports, one from each of three companies, that holds all the information about your debts and your financial past.
Your credit score is affected by five factors, some of which you can change and some of which you’ve got no control over.
While you have the right to get your three credit reports for free once a year from Freecreditreport.com, you might want to monitor your report more frequently. One error on your credit report could send your score plummeting and your interest rates higher. Identity theft happens every two seconds in America and destroys credit scores along with it.
I use Experian to keep track of my score with its monitoring services and identity theft protection. The program includes unlimited access to your Experian credit report and FICO score along with a $50,000 guarantee if your identity is stolen.
Even the best credit scores can get better and most of us have a long way to go to get the best rates possible. Managing your credit score through these 21 steps to fix your credit score in six months is the best way to use debt. Some of the steps will help increase your score quickly while others will take a little longer but can really help boost your credit.
Coming from the finance sector, one of the most common questions I get is about the new opportunity in peer lending. The most popular use of p2p loans is for debt consolidation, taking out a personal loan to pay off high-interest credit card debt.
Debt consolidation loans through Lending Club can be a great tool to lower the amount of interest you pay on debt. I did a review of Lending Club and found that the average borrower saves up to 30% annual interest against their credit card rates. Of course, you can’t just use a debt consolidation loan to go out and spend more.
The most common complaint I get about Lending Club and other p2p sites is the high credit score needed to get a loan. You’ll need a credit score of about 640 to get approved for a loan which locks a lot of people out of the opportunity. For borrowers with lower credit scores, I recommend trying Personal Loans.com which matches borrowers with lenders and can work with bad credit borrowers. Rates are normally a little higher than what you’ll find on Lending Club loans but still can be used as a good tool for debt consolidation.
Click to Apply for Personal Loans up to 35,000. Won’t affect your Credit Score.
One of my favorite PeerStories on the site is from Francis and how his debt plan saved $22,000 in a year. Francis and his wife used a combination of budgeting, making extra money and some great savings hacks to ditch their debt in a year. Check out his story for ways of getting started on your debt plan.
Getting Started with Making Extra Money
Getting started making extra money isn’t necessarily only about filling short-term gaps in your budget. That might be where it starts but it can also be your best chance at true financial freedom.
Steve Jobs’ quote above and all the other quotes about doing what you love seem cliché but it’s absolutely true. I spent years hating my ‘job’ and just living for retirement. I was miserable but settled for the idea that there was nothing I could do about it but get rich and get out of work.
After about four years of working as a freelancer, writing investment analysis and valuations, I was able to start my two blogs on crowdfunding and personal finance. I work harder and more hours than I ever did at a 9-to-5 but love doing it. I love talking about this stuff and sometimes catch myself planning out my week during the weekend. Sure, I’ll slow down a little when I get older but can’t imagine ever fully retiring and not talking about personal finance and investing.
You may not be able to start doing your dream job right now but you can start slowly by freelancing, building your expertise in your field. Anything you enjoy doing, you can freelance! Check out this earlier post on how to make money freelancing and nine websites for getting started.
Not sure if you’ve got the skills yet to start freelancing? I’ve used Udemy to learn social media marketing and have talked to people that have used it for everything from writing to writing software code. The website is like an online community college but with about any course you can imagine. Courses are normally up to four hours long of recorded video and readings.
Some courses can get pricey but the site is constantly running huge discounts. Checking student reviews helps to make sure you’re getting a good course that will give you the foundation to start freelancing.
Need ideas about what you can do to make extra money? I ran a five-week series on ways to make extra cash that covered online writing, crowdfunding, selling on Craigslist and a bunch of other ideas. Check out the series for ideas on getting started freelancing and finding your own sense of financial freedom.
Getting Started with Investing
If you are ever going to reach financial freedom, you have to stop renting your life. You have to stop using money only for the short-term gain of buying perishable goods and start using it to buy things that others rent. This means investing in stocks, bonds, real estate and other assets that will grow in value and provide an income on your money.
Investing starts with putting together a personal investment plan, a road map to what you need and how to get there through investments. Much like getting started with personal finances means figuring out your financial goals, you won’t be able to invest correctly unless you have a plan for where you need to end up.
- What rate of return do you need to meet your goals?
- What kind of risk are you comfortable taking in investments?
- When will you need your money and how will taxes affect your plan?
- Are there legal or unique circumstances that affect your situation?
Putting together a plan doesn’t mean rush out to trade tech stocks and hope for the market to zoom higher. In fact, playing the amateur’s game and making the safe plays may be your best chance at winning the stock market game.
Part of playing the amateur’s game is sticking to the basics and avoiding the big mistakes that set most investors back. Check out these 10 Investing Basics for New Investors and the 10 Investing Myths to Avoid for everything you need to get started.
Once you understand how to put together a long-term investing strategy around your needs and the basics, opening an online account and buying stocks is a fairly easy process. Depending on your investing needs, you may only need one account or you might consider opening a few. I have accounts with four online investing sites for different features on each. I do not pay inactivity fees or account fees on any so there’s no loss to having more than one account.
One of my investing accounts is through Motif Investing (check out the Motif Investing review here) for its innovative approach at diversification and low fees. Through Motif, you can buy 30 stocks for one commission and instantly lower your risk compared to buying individual stocks. Its one of the most inexpensive ways to invest considering it would otherwise cost hundreds of dollars to buy 30 individual stocks.
Want more ways of getting started investing? Check out my book, The Passive Income Myth, to cut through the B.S. and scams in passive income investing. I cover the four most popular passive income strategies; blogging, real estate, stocks and bonds to show you how much work is really involved in creating a source of income through each.
Getting started with your personal finances isn’t something you’re going to complete over night but you can get the ball rolling. Don’t put it off because you’ll be putting it off for the rest of your life. Reaching financial freedom isn’t as complicated as you may think but you do need to start on a plan and figure out what that freedom looks like for you. Work through the process above and check out the blog for great tips every week on personal finance, debt, investing and more.