Let me guess, like myself, you're trying to figure out how to get better with money?
Perhaps I am speaking on behalf of just myself, but for the better part of my life I really didn't know anything about money.
Money skills weren't taught in school and most of what I knew came from my mom.
Before age 27 I had never read a single book on money, a whopping total of zero personal finance blogs, and had no intention of ever-changing my money habits.
Honestly, I didn't really care that much about learning or getting better with money… so long as it was coming in I was happy.
Most of what I knew about money was from my upbringing. I think I speak for most when I say that is probably where most learn about money.
Luckily for me, I developed some really good habits – like never take out credit card debit – but I also learned some really bad habits (I am rather impulsive in nature, and as you may or may not know, money and impulsivity do not mix well).
All of his led me to this one question:
How does someone who doesn't really care that much about money, get better with money?
How to get better with money (for starters).
While my priority for most of my financial writing started with paying off debt, it has since led to helping others with making money and long term happiness.
Luckily you will never have to worry about reading what I ate last week for lunch, but while the in-depth investing stuff online is super beneficial for some, just like in sports, you can’t score the game-winning lay-up if you can’t get the ball up the court.
In other words….
Personal finance is a progression.
Just like sports. Just like everything really, it takes time to get good at and learn. Money is funny, but it is actually really simple.
You were not the best soccer player or football star the first time you practiced. It takes time to develop, so if that is the case, shouldn't money be the same way?
So today, I aim to get back to the basics in regards to personal finance and money, and write about, “How to Get Better With Money.” My aim is to provide something that someone who had no clue about money could use right out of the gates.
Think of a 14 year old with a $40,000 per year salary… that's how simple this is!
How to Get Better With Money in 17 Steps
Below you will find 17 steps that I think, if you follow will make you better with money.
1. How much money do you make each month?
How much money to you bring home each month? Write it down.
Seriously. No fluff. Forget the, “Well sometimes I might make,” and write the number down. This number is essential and everything you do financially and being honest only helps you.
Knowing how much you make is essential to all of your personal finance growth. The absolute worst thing you can do is be dishonest with the person in the mirror!
2. Categorize your Spending.
Before ever getting on a budget, first you should really begin to categorize your spending. Make a list of all types of spending. Housing, utilities, transportation, debt, communication, spending, food, gym, and whatever else to just name a few.
For a general idea of what you should include, use this Fixed & Variable Expense Sheet.
3. Create a working budget.
This might speak for itself, but statistics say about 60% of people do not operate within a budget. With 80% of people living paycheck to paycheck it is safe to say that a budget might make a bigger impact then we sometimes think.
Here is the low down on budgeting – basics win the game. And budgeting is basic personal finance 101. But a budget should fit YOU!
4. Identify ‘Slash’ areas within your budget.
Where can you make cuts or ‘Slash' your budget. Seriously;
- Do you need 129 channels of cable?
- Does the $10 gym membership work just as well as the $60 membership?
- Does the iPhone 11 really do that much more than the iPhone 8?
- Is eating out costing you $2400 a year like it does most people?
Figure out where you can tweak some spending and slowly start to implement those within your budget. Don't go cold turkey. Give yourself some credit and slowly incorporate your adjustments.
Consider making cuts in spending in these areas:
- Eating out
- App & Subscriptions
- Ride Shares
5. Develop something similar to the 50/30/20 plan.
How much of your paycheck should go to what? I was reading a good article on where the money from your paycheck should go and in a nutshell;
- 50% should go to living expenses and necessary items.
- 30% should go to lifestyle (to start). And at the very minimum…
- 20% should go to savings/debt/investing.
My personal take is that you should really work to a 50/50 and delay gratification for 2 years and you might be surprised what can happen. However, in most situations, for starters the 50/30/20 plan is a great starting point.
(Q: What if you saved 20% of your salary this year, what would that number be? <—Savings by age chart)
6. Have a long term plan.
This doesn’t have to be something crazy. Just write down some long term goals – 1 year, 3 years, 5 years, and 10 years out.
For example here are my goals I wrote in 2016 – Debt Free in 2019, Mortgage Free 2021, buy a new home and have one rental property in 2021, financially independent before 35.
Sure, I could be more specific, but start with a working plan and at least you have a destination! As you progress you will take the necessary action steps to accomplish your goals.
Just setting simple financial goals puts you in a league of your own!
Debt Management & Saving Basics
After you have the basics covered, it is time to start attacking debt and saving more. At least 25% of your finances should be saved or used towards debt. Period, dot.
7. Line up debts
First priority, line up any debt you have from consumer and auto, to student loans and lines of credit.
For now, forget the mortgage, that will come down the road. Now conventional wisdom says start with the lowest amount and work at that first. While I agree, in some scenarios if you have a huge credit card balance to payoff and a small student loan, the credit card might be something to consider first.
Often, I will see what will provide the most cash flow once it is paid off first. Then I consider which interest rate is hurting me the most.
8. Develop and emergency savings fund.
Dave Ramsey says $1,000, sorry Dave, but that is a joke.
Other financial experts say 3-6 months of living expenses. As a general rule of thumb, you should ideally have at least three, ideally 6+ months of expenses in emergency savings!
You need an emergency savings account that is NOT linked to your checking.
The whole point of savings is to save. Not to use as a debit card back up. Prior to paying off debt that you lined up in step 7, you must first create an emergency fund.
9. Create a plan to attack debt and set small goals.
Start by seeing what you can contribute each month. Using #5 from above, see what amount of the 20% you can dedicate to your debt. Stick to it, no excuses.
Typically called the, “Pay Yourself First Strategy,” having a non-negotiable amount to go towards debt is always key and help promotes positive financial decisions.
Consider even auto paying a select amount from your check if that is a viable option.
10. Roll the money towards the next item until debt is gone.
Tax returns are great ways to expedite debt pay off and increase savings as well. I contributed to a great post about tax payoff and student loans on Student Loan Hero.
I get it, you might feel like your drowning in debt (I know we did). Starting with the smallest and working your way up gives you small victories.
Now that you are getting better at paying off debt, roll the paid off debt payments towards the next debt item and so on. Known as the debt snowball, the goal is to work towards a debt avalanche, that ultimately frees you… but it is easier to start with the debt snowball (Debt Snowball 101)
I realize that everything is simpler said than done. All personal finance goals are accomplished with some sort of action. Personal finance and getting better with money really boils down to 3 things:
- Saving more then you spend
- Eliminating debt
- Making more money.
The issue is that most will focus on 1 of the 3, sometimes 2, but very rarely will someone do all three (Just my opinion).
One of my big goals with Money Life Wax is to not only teach people about becoming debt free and financially secure, but also providing information on creating extra income… so they can accomplish all 3.
11. Create a list of things you like to do.
Personally, Uber is great, but the idea of driving someone around on my nights off doesn’t sit well with me. And no thanks to filling out countless surveys.
So creating the right side hustle starts with doing what YOU LIKE if possible. Start by creating a list:
- Like working out?
- Maybe you have a craft hobby?
- Or do you like cooking?
- Maybe you like computers?
See where you can create a side hustle around something you enjoy. Maybe you can train a co-worker or sell crafts online.
Creating a side hustle, even if it is only $200 a month can make a huge difference. To put it in perspective, my annual 3% teaching raise equals out to about $100 a month after taxes. Just an extra $200 a month is like receiving a 6% raise!
Related: Read this list of 50 Side Hustles
12. Find a way to make money with computers.
Computers offer low start up costs for business owners, the ability to learn new skills without grabbing another degree and $20,000 in student loan debt, and the ability to work on your time.
From freelancing to blogging, there are a lot of potions when it comes to making money online.
If time is of the essence and you need flexibility, explore new ways to earn online. For starters, here is a list of 10 ways to make money online.
My go to – Start a blog.
Yes, becoming an entrepreneur can lead you down a path you might not ever imagine. If you have a great business idea start putting it to action. Stay consistent and remember Rome wasn’t built in a day.
Staying motivated when it comes to Personal Finance
The last piece when it comes to personal finance is staying motivated. Quite honestly, sometimes delaying your gratification can really suck.
BUT.. the end results are always worth it.
I often tell my students about how wrestling practice, cutting weight, working out relentlessly and not hanging out with my friends made the sport a bit draining. However, all the hard work was worth the wins on Saturday and the perseverance I learned from the sport.
Sometimes personal finance can be the same way. So in order to stay motivated, here are a few tips.
14. Know WHY
Do you even know why you need to be more financially savvy and secure?
I am sure you do, but maybe you never sat and thought about it. I would recommend figuring out why.
Things to consider – most people never have enough for retirement. Sandwich generation is real – taking care of parents while kids go to college – and there are about a million other things that can happen.
Wait workout.. What does that have to do with finances?
A lot, actually! Working out has been linked to making people more productive, happier and energetic. All three go great when it comes to personal finance.
A few ideas include meal planning, doing 5 minutes of stretches every morning, and squeezing in 20 minutes of cardio 3x a week.
Related: What does getting healthy even mean?
16. Have small benchmarks or goals you can quickly accomplish.
Having several small goals to reach along the way can keep you motivated. The long term vision is great, but small wins and the feeling of accomplishing your goals will keep you focused.
Believe it or not most people will make a decision but never act. One you get going, having small goals along the way – like paying off the credit card – will keep you motivated.
Be sure to write down the small victories!
17. Celebrate the small victories!
Like #16 said, writing down your victories is great, then setting up a reward system for hitting your short term goals will keep you even more motivated.
I have seen people use debt thermometers they color in, or create personal finance vision boards!
My takeaway when it comes to personal finance in general.
Whether you decide to work towards 1 of these or all 17 at least you took some action. Like I said earlier, I think the flashy and fancy personal finance stuff is great, but most just need something simple to get started.
Two years ago I had no clue what I was doing when it came to personal finance. I thought saving $200 and making payments on time was the key to life.
I quickly realized there was a lot more out there and that unfortunately having loads of debt would only limit the options we had.
Slowly and surely, things started to fall together which is how we have been able to do things like paying of $17,000 in one month and $57,000 in 2017!!!
Q: Did this article get you thinking differently about your finances?
Josh writes about ways to make money, pay off debt, and improve yourself. After paying off $300,000 in student loans with his wife in less than five years, Josh started Money Life Wax and has been featured on Forbes, Business Insider, Huffington Post, and many more! In addition to being a life-long entrepreneur, Josh and his wife enjoy spending time with their newborn son, their chocolate lab named Morgan, working out, being outside, traveling, and helping others with their finances! In case you were wondering, Josh uses Personal Capital to track his net worth and his first investment account ever was an Acorns account 😎