Now that you’ve checked your credit score and chosen your bank, you can better identify areas where you need to improve your finances, as well as your avenues for saving and depositing money. Next you need a system of budgeting.
It’s time for the next crucial financial planning steps: tracking expenses and savings with a simple system of budgeting that only requires some paper, a pen and maybe a helpful app.
My method for success starts with your money journal – a notebook dedicated to your money. It can be a spiral notebook. Nothing fancy or expensive. This is your private journal, and it will give you great insight and satisfaction.
Every time you write in your journal, make a note of the date to help you see how far you have come from when you started.
You can be very creative and introspective, because this is a personal journey, and no one else gets to comment, complain or criticize.
Taking this action in the first month may be difficult or even awkward. Do not let that deter you from continuing on your path. I am a firm advocate of baby steps. Just take action, don’t wait until next month, tomorrow or Monday. Just do it. Do it today.
If you don’t know where to start, try this three-week journal challenge.
In the first week, jot down your financial goals and your current financial standing. Don’t judge yourself too hard. You are, after all, taking the most important steps to financial security.
Remember your credit score from Part 1? Write that down. Write down where you want to be next month, next year or in five years. Do you want to save for a home? Do you want to invest? It’s all up to you.
In the second week, on a fresh page, write down all of your net income (take home money after paying taxes and any other payroll deductions) earned since your last entry.
Now review your spending tracker to see exactly how you have disbursed your money. A few of the best expense tracker apps include:
Taking this time to analyze your numbers will show you exactly where your money went and how you are progressing in reaching your goals. The most common realization is that more money than expected was spent on food (eating out and lattes). This is another time for reflection, and to allow yourself room for adjustments and improvements.
When looking at your recent and upcoming expenditures, make it a point to consider and calculate periodic expenses, such as semi-annual insurance payments or anticipated vacations. While we know these expenses are coming, many of us do not plan for them and wind up “caught by surprise” when the bills come, forced to use credit and/or pay a premium for costs, which should have been anticipated and planned for.
You will likely find holes where money has been leaking. Perhaps you under or overestimated your allocation of funds for one category of expenses. Perhaps there are expenses you didn’t consider at all. There is no judgment here and no room for recriminations—just the opportunity to take a fresh look at what you have been doing and what actions you can take for improvement over the next period.
On the third week of each month, analyze your savings. If you have not done so yet, now is the time to start your savings plan.
Begin with a pre-determined set amount (or percentage of take-home income) for savings that you will designate to “pay yourself first.” Thus, as a responsible adult, a specific portion of the money you earn will be deposited into a separate account for savings only (the savings can be divided among your goals and must include an emergency fund for the expected, unexpected). Start with a set amount and have the money automatically deducted from your paycheck or checking account and deposited into your savings account.
It’s also important to start saving for retirement as early as possible. Consider signing up for your employer’s retirement plan, at least to the extent of the “match.” The effects of compounding and routine saving add up quickly. At the same time, be ultraconservative about the amounts you borrow and the credit you access, as you want compounding to work in your favor, not against you. We will talk more about retirement in a later installment of this series, when we talk about protecting and growing your assets.
Once you have your savings plan in effect, use this third week of the month to look at your progress and pat yourself on the back. The euphoria of savings and growth will give you added incentive to complete each of the financial planning steps.
Use your journal to congratulate yourself on your accomplishments, make note of your successes and discover wholesome incentives to keep your commitments to personal financial planning.
Congratulations. You’ve begun the journey of personal financial planning by taking responsibility for your finances with an easy and nonjudgmental system of budgeting.
In the next installment, we’ll talk about something that many of you, especially recent graduates or big spenders, will need to address: debt.
[Editor’s Note: To learn more about this and related topics, you may want to attend the following webinars: Alpha, Beta & Other Key Concepts and Goal Based Investing – Planning for Key Life Events.]
Michelle Gershfeld is a bankruptcy attorney, debt negotiator and personal financial life coach who advises people who are in debt, or building wealth, by identifying and overcoming obstacles that lie in their path to securing worry-free, financial wellness. Michelle’s private practice, Law Offices of Michelle Gershfeld, provides services to clients on financial distress workshop with clients…
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