Life can throw you curveballs, bringing unexpected events
and expenses. That’s why building financial resilience in your life can be so
powerful — and it starts with learning to have a basic sense of how your
finances work and what you can do to make them work better for you.
If you’re feeling a bit uncertain or overwhelmed about how
to get your finances in order, the first place to start is to define your
goals. What is it that you want to achieve? It may be sticking to a budget,
paying down debt, saving for retirement, building an emergency fund or saving
for a big expense like a car, a home or a child’s education.
Let’s walk through
four basics for building a more resilient financial life.
Step 1: Be SMART with your goals
Whatever your goals, I encourage you to put pen to paper to
write them down. I like to use something called the SMART goal-setting method,
which stands for:
Specific
Measurable
Action-oriented
Realistic
Time-bound
For example, if you want to pay off debt, start with the
actual dollar amount of how much you want to pay down. That makes it Specific
and Measurable. Then, get Action-oriented by defining the steps you're going to
take. If it’s paying down debt, maybe you can cut back on eating out or put
your tax refund toward your credit card bill.
By making your goal Specific, Measurable and
Action-oriented, you’ll be able to see if your goal is Realistic — and if not,
you can adjust, like by extending the time frame. Speaking of time, the T in
SMART stands for Time-bound: Give your goal an expiration date so you have a
target in mind. Once you reach that deadline, you're encouraged to make the
next goal, and then the next — and that's how we make progress in our financial
lives.
Step 2: Be organized
I like to use the analogy of building a house. It’s fun to
dream about your floor plan and decorations, but building the house doesn’t
truly begin until you break ground and lay the foundation. Creating a more
formal budget is the foundation of our financial lives, helping us see exactly
where money is flowing so we can better allocate it to our many needs, wants
and goals. Calculate every dollar coming in, including earnings from your job
or any other sources, such as a rental property or side hustle. Next, track
your expenses — everything from rent and gas to coffee and birthday gifts. Once
you list all those expenses, separate them into two columns for needs and wants.
This part is going to be different for everybody. For
example, we all need to wear clothes, but do you really need new clothes every
month? Maybe you do if have a growing child or need a new coat — but maybe not,
and maybe you can put new clothes in the “want” column instead of the “need”
column.
Another helpful tip is what's called the 50-30-20 rule:
Think about 50% of your budget going to cover needs like bills, food, housing,
insurance and utilities; then the next 30% to wants like streaming services,
vacations or new gadgets; and then the remaining 20% to savings — like your
retirement account, stock portfolio and emergency fund.
Step 3: Be realistic
Practice makes perfect, so think of your financial life like
playing a game of darts, where each triangle on that dart board is a different
aspect of what you said you were going to spend or save to reach your goals.
The more you practice throwing that dart, the better you're going to be at
hitting the mark consistently.
Of course, many of us live paycheck to paycheck or rack up
debt to make ends meet. If that’s where you are today, it still helps to get a
clearer picture of your goals, income, spending, needs and wants. Write it all
down and try to identify places where you can potentially cut back. For
example, you probably need your cellphone, but is there a less expensive plan
that could work? If there’s really no wiggle room, look for ways to bring in
additional income — maybe turning that passion project into a side hustle or
picking up a flexible part-time job.
Making ends meet can be tough, so it’s important to put
energy into building a financial cushion when you have the chance. You may have
also heard that it's a good idea to have three to six months of essential
expenses saved up as an emergency fund, but for many of us, that’s easier said
than done. Just keep in mind that savings don’t appear overnight. Start small,
figure out what works for your lifestyle, and save — even if it’s $5 at a time.
Step 4: Get support
Financial literacy is simple, but not necessarily easy. The
sooner you start budgeting, saving and investing, the more time you have for
your money to potentially grow and help you reach your goals. Even small
amounts of invested money can add up over time, thanks to the power of
compounding interest. So make sure that you're working to build up your
financial resilience today so that when you retire, you can live the kind of
life that you've always envisioned. If you feel behind, don’t panic — just
start today, and start as small as you need to.
Our finances are such a significant area of our lives, which
is why I personally find it very reassuring to know that there are many types
of professionals out there who can offer support as you assess your options,
prepare your next steps, and work to achieve your goals. Maybe you’re ready to
build out a financial support team with help from attorneys, accountants or
financial advisers and coaches. Many companies offer their employees access to
financial education, advice and resources as a part of their benefits package,
so check out whether your company offers any additional support that can help
you take control of your financial journey today.
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