Even though there is a ton of advice floating around about how to be financially successful, many people still struggle with managing their money. The truth is, financial success doesn’t need to be complicated, time consuming, or overly restrictive.
Below I have compiled three simple steps that will set you on the path to financial freedom.
First, be intentional. Start by adding up your regular, necessary expenses (bills, gas, food, etc.), then, subtract this number from your take-home income. This is what you have left for paying extra toward debts, saving, and discretionary spending. The trick is to allocate properly and intentionally among these categories, and to reassess on a regular basis. Many people begin spending without first creating any intention behind where their money should be going. Be realistic about your current financial situation and live within your means. Just keep in mind that if you are too restrictive, you likely won’t stick with it.
Second, automate. Beyond automatic bill pay, automate your debt payoff and be sure to stretch—don’t just pay the minimum. Next, if you aren’t automatically saving for shorter term needs (emergencies, large purchases, semi-regular expenses), you need to start now. Do what works for you: set up an automatic transfer from your checking to savings each month; have a portion of your paycheck go to a savings account; if your income is variable, determine a base living expense and pay yourself each month with the remainder retained in a separate account. Finally, save for the future via a company sponsored retirement plan, such as a 401(k) or in an IRA or Roth IRA.
Third, and perhaps most importantly, don’t be afraid to start small or make small changes—it all adds up. Take a step and move forward. You will thank yourself later.
Megan Nichols, CFP®
Following the 50/30/20 budget is a simple way to spend your money responsibly. Check out this calculator to see how your spending compares.