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A recent study by Bank of America found that 94% of women believe they will be personally responsible for their finances at some point in their adult life. However, only 48% feel confident about their financial situation and just 28% feel comfortable taking any action). It’s time we changed that, don’t you think?
It’s a common misconception that mastering money management requires complex strategies and large investments. The truth is financial mastery is easier than you think. You just need an approachable and non-intimidating path forward.
That, my friend, is right here.
Kicking off your financial journey is as easy as 1, 2, 3.
My Master Your Money Spreadsheet is a simple, easily digestible document that breaks out your finances into three categories: Net Worth, Monthly Spend, and Savings Contributions.
1. Start by Tracking Your Net Worth
Net worth is the total value of what you own (assets) minus what you owe (liabilities). To calculate your net worth, simply add up the value of all your assets and then subtract the total amount of your liabilities.
While some of us may understand this concept in theory, rarely do we write down every single asset and liability on paper to get an accurate number. This spreadsheet forces you to track down and identify all your accounts and write them all down. Once you do, update it every quarter and monitor your progress.
2. Monitor and Analyze Your Spending
It’s a whole lot easier to make financial goals when you have an accurate breakdown of what you typically spend on your everyday expenses. I recommend breaking out your monthly spend in a financial reporting app (I love RocketMoney) and tracking your spend month over month for 3 months before you make any changes.
It’s important to get a general understanding of what you spend before you start to think about what you can cut back on or save. From there, I suggest mapping out a budget and allocating anywhere from 10-30% of your total income to your savings goals.
Warning: This will require some sacrifice, but your future self will thank you!
3. Pay off Debt
I know, I know. Easier said than done.
But the first step to paying off debt is to understand exactly what type of debt you have and what the interest rate is on each form.
It’s important to know the difference between high-interest debt (like those pesky credit cards) and low-interest debt (like student loans).
Trust me, tackling high-interest debt first can save you tons in the long run!
The Two Common Strategies for Paying Off Debt are Below:
Snowball Method: Start with the smallest debts. It feels so good to knock them out one by one!
Avalanche Method: Go for the high-interest debts first. It’s like climbing a mountain, tough but worth it!
I’ll let you decide what’s best for you but the point is to write out all your debts in the Net Work Spreadsheet so you can form a plan of attack.
4. Set Your Savings Goals
The first step in achieving a goal, is to make it.
Seems basic but hear me out. Research indicates that people are 42% more likely to achieve their goals simply by writing them down*. (*Source) The act of writing down goals helps clarify what you want to achieve, reinforces your commitment, and increases motivation by making your objectives tangible and actionable.
So, at the beginning of every calendar year, I look at my 'Savings' tab in my spreadsheet and write down the amount of money I want to save in every single account I have listed.
Whether you write down 0 or 1,000,000, the point remains the same - you won't get there without first writing it down. You can always scale back or edit, but you need to start somewhere.
Here are some accounts to think about saving towards:
Emergency fund - Savings account or a financial reserve set aside to cover unexpected expenses or financial emergencies.
Short-term savings accounts - Savings that are intended to be used within a few months that are easily liquidable.
Retirement accounts – Long-term savings accounts, typically with tax advantageous that are designed to help individuals save for retirement. Examples are 401K, IRA ROTH.
Investment accounts – Financial accounts that allow individuals to buy and sell a wide range of securities including stocks, bonds, mutual funds, etc.
I contribute to these in order of priority. First, make sure you have enough money for a rainy day (emergency fund), then start monthly automatic payments to your short-term savings accounts for things like taxes or ‘big ticket” items that can otherwise be a huge financial burden if you must make a one-time payment.
When considering other financial savings accounts, I try to prioritize “tax-advantaged” accounts first – AKA those accounts that you don’t have to pay taxes on, like your Traditional 401K. While you may not be able to use that money until retirement, it’s the best way to save for your future without paying taxes in the short term.
I know it’s tough, but I suggest contributing as much to this as possible (max of $23,000 in 2024) to avoid paying taxes on that income. You can always transfer money from a savings or brokerage account to fund this account if you don’t have the cash readily available.
5. Achieve your Savings Goals
Now that you have articulated your goals, you need to do the hard part which is to make that happen.
Create a Budget: Develop a budget that outlines your income, expenses, and savings goals. This will likely require you to cut out unnecessary expenses and/or get strict about what you really need verses want.
Automate Savings: Set up automatic transfers to your savings accounts. This ensures that you save a portion of your income before you have a chance to spend it.
Track Progress: Use my FREE Spreadsheet to track your progress at the end of every single month. This will help you gauge whether you need to adjust your strategies to stay on course.
By following these tips, you can develop a strong financial foundation and achieve your goals consistently each year.
In Conclusion, the first step to becoming financially independent is to be in the know so you can identify where you are and where you want to be.
Without understanding your financial foundation, you can’t strategically plan for
the future.
You can’t set realistic goals or budget with purpose.
Get started.
Go!
I’ll be here waiting for your update!
You can download my FREE Master Your Money Spreadsheet here. If you need more help, subscribe to my newsletter and keep an eye out for my financial seminar coming up.
Follow me on Instagram at @TheOrderlyLife for more organization tips and inspiration.
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