Three Ways To Take Control of Your Finances

As a financial planner I’ve seen how intimidated most people are by finance. I see lots of clients who don’t understand basic finance, thus they have avoided managing (or “dealing with”) their money all together. I hear things like “I’m not finance-y”, or “My spouse is the one who manages the finances”.

It’s understandable why so many avoid learning about money management! It’s way over-complicated, the financial universe is infinite and I guess some people may find it dreadfully boring (sob). Plus, you may think: “Well, I’m getting along just fine without understanding how to properly budget or reviewing my 401k, so why should I learn about it now?”.

Glad you asked, dear reader.

Finance is Part of Your Life

Finances and life are not two separate categories. They are intertwined at every step you take, whether it’s day-to-day or long term. Your money management skills have a direct impact on your employment, grocery shopping, housing decisions, travel, retirement options, childcare, etc. So while you may be getting along just “fine”, understanding your finances can help you reach your goals and provide opportunities – all which can dramatically improve one’s life.

At a more basic level, having some financial knowledge and awareness can help to prevent hardships in the future and manage current problems. Finances are one of the major causes of stress for adults. Everyone can relate to this stress; even the wealthiest people have felt financial pains at one time or another. Debt and/or a lack of savings can cause considerable hardship on a person’s life. And it doesn’t just cause daily stress. Financial problems can lead to divorce, poor health, depression, and bankruptcy. The statistics below show that plenty of adults are feeling the pressure of financial issues. Many of these could be avoided with some basic knowledge.

Statistical Reality

• Nearly half of Americans don’t have enough cash available to cover a $400 emergency. Getting fired or having a medical emergency without any savings would be devastating. Understanding the importance of an emergency fund could prevent this.
• Millennials are starting their careers with a combined $1.1 trillion in debt. Students coming out of college have more crippling student loans than ever. They are spending years trying to pay them off, which means they are saving less than they could. Being taught about debt, the different ways to pay for colleges, and the importance of not borrowing more than you can afford could help to prevent these massive numbers.
• 38% of U.S. households have credit card debt. On average, they owe $16,048 with an APR of 16.47%. While some debt, like mortgages or student loans, can be considered “good” debt, credit cards are most definitely not. Learning the dangers of credit cards and high interest rates are critical, as well as the importance of paying them off.
• 33% of American adults have $0 saved for retirement. Considering the fact that most will need at least $1 million to retire (for 30 years of living), a lack of savings is a major problem. The most important rule in saving for retirement is to start early. However, seldom do because they weren’t taught the important of compound interest and time.

The Basics

These statistics are not meant to scare you, but meant to show how vital financial education is to living a financially healthy life. And you don’t have to understand what a hedge fund or the efficient frontier (huh?) is to be financially healthy. Being financially healthy means you know the difference between good debt and bad debt, and know how to avoid crushing credit card debt. You understand the importance of saving often and early, so as retirement nears you feel secure in your future. It also means that no matter your stage of life or income, you know how to live within your means, stick to a budget, and spend responsibly. Finally, healthy attitudes and confidence around money enable you to learn complex concepts such as investing and how to make smart decisions to make more money.

To help you get organized and feel more confident in your own financial capabilities, go through the below exercises. Don’t worry if it’s not perfect; taking some time to think about the items below will demystify “finance”, and make it seem less intimidating. Just remember, you only have to understand some basics to live a financial healthy life.

Know Your Finances: 

Create a net worth statement, which is a snapshot of your financial world. How much do you have, and how much do you owe? Next, create a budget. No one likes the “B” word, but it’s not meant to be a form of torture. It’s just a record of how much you make and how much you spend. The two most important things to consider: Pay yourself first, and make sure you make more than you spend.

Determine Your Goals: 

Are you saving for a new house? Want to retire in 5 years? Or are you hoping to start your own business at some point? Get clear about your goals, determine if they are long-term or short-term and prioritize them. Then make a plan to reach the most important one.

Build Positive Habits: 

Below are easy things you can do now to help manage your finances.

• Automate your monthly savings
• Automate your bills
• Pay extra on credit cards

Getting started is the hardest part. But it’s up to each and every adult to have this base knowledge so they can take care of themselves financially, can plan for their future and live their fullest life.

This guest post was authored by Liz Frazier

Liz Frazier is the author of  “Beyond Piggy Banks and Lemonade Stands: How to Teach Young Kids About Finance”, [Fall 2019] a guide to help parents, caregivers and educators teach elementary school kids the financial basics. In addition to her CFP, Frazier holds an MBA from Wake Forest University and is a member of the Financial Planning Association (FPA) and the National Association of Personal Financial Advisors (NAPFA). She is also a regular finance contributor on Forbes.com, focusing on everyday personal finance that anyone can understand and use; her articles provide real world simple, accessible, and entertaining financial advice.