When considering personal financial management, it is easy to become overwhelmed. The sheer number of factors that impact financial health can discourage people from trying to take control of their finances. However, financial situations often only become more complicated when you avoid learning the basics of financial management. The largest barriers to taking control of your personal finances are time and knowledge. Unless you schedule time to deal with your finances, you will likely never take the initiative. Financial planners suggest that people create a plan to gain the knowledge that they need, whether by joining a personal finance website, consulting a professional, or reading a book.
You can get on the right track to effective personal financial management in a single day. By choosing a holiday, Saturday, or a Sunday to devote to this task, you can lay a foundation of knowledge and begin taking control of your finances, according to financial planners. Here is a general outline of the steps you can follow on the day you choose to devote to financial literacy:
Start with a good book:
After a solid breakfast to get your brain working, you should spend some time with a good financial book. Over the course of a couple hours, you should spend time skimming through it. While you won’t become a financial expert in a matter of hours, you can get a better sense of what you already know and, more importantly, what you need to spend more time learning.
While the book you choose will depend on your own situation and primary concerns, financial planners say that there are a few general books about finance that stand out from the rest. One is Rick Edelman’s The Truth About Money, which is very comprehensive without becoming too bogged down in the details. Since the book focuses on personal finance, it can give individuals a better sense of the road map that they need to follow to get where they want to be. One of the best features of the book is a quiz at the beginning, which provides individuals with a clear sense of where they need to focus their time.
According to financial planners, older people may want to consider The Charles Schwab Guide to Finances After Fifty, written by Carrie Schwab Pomerantz. The book covers particularly challenging issues during this period of life, which might include saving for retirement or paying for a child’s college education.
Focus on the numbers:
After taking a lunch break to allow the information from the book to sink in, you should spend a few hours taking inventory of your personal finances with a particular focus on numbers. Many people in the United States cannot explain exactly where their money goes each month, and impulse buys such as a dining out can really add up when you do not keep track. In order to get a better idea of where you spend your money, you can use free apps such as Mint.com, which automatically tracks your purchases and gives a breakdown of your monthly expenses. In order to really find patterns in your spending, you should review your purchases over the course of the past six months to one year, financial planners say.
With a macroscopic view of spending, individuals can often see where they should cut corners without needing to speak to a personal finance specialist. For example, if you spend as much money on Starbucks as you do on groceries, perhaps it is time to start brewing your coffee at home. By reprioritizing your spending, you can begin saving almost immediately.
During this time, you should also create a chart of assets so that you can see on paper what your net worth really is. Assets include bank and brokerage accounts, retirement savings, and the value of any cars, homes, and other major possessions. According to financial planners, you also need to consider liabilities such as mortgages, student loans, credit card debt, and car loans.
Set goals and incorporate feedback:
With a better foundation of financial knowledge and a clear understanding of their own financial situation, individuals typically begin to feel empowered even if their net worth is not exactly where they want it to be. Knowledge gained from books can help people to set realistic goals for themselves within the coming months and years in order to get themselves back on track, financial planners say. People must understand that improving their financial situation will only be possible through deliberate change.
Individuals who modify their spending and financial strategies must pay careful attention to how these changes play out over the course of the coming days, weeks, and months. Sometimes, the changes do not have the intended effect, or the shift is not as dramatic as expected. In these cases, it is important to incorporate the feedback into your financial strategy and make additional changes in order to stay on track. Financial management is a system of constant checks and balances to ensure that you are on the right path toward your goals. By taking the time to regularly review your finances, you can identify new issues before they become problems.