Finance- Where To Even Start?

Finance 101- All the things you didn’t learn in school

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Starting with personal finance can seem overwhelming, but taking small steps and building a solid foundation can lead to financial security and success. Here’s a step-by-step guide to help you get started:

1. Set Financial Goals: Determine your short-term and long-term financial objectives. Whether it’s saving for an emergency fund, paying off debt, buying a home, or planning for retirement, having clear goals will guide your financial decisions.
2. Create a Budget: Track your income and expenses to understand where your money is going. A budget will help you manage your finances, identify areas for potential savings, and ensure you’re living within your means. Always learn to pay yourself first, and no that does not mean to go out and buy the latest and greatest iPhone. Instead look to save and invest a portion of your income from each pay check to allow for financial freedom in the future.
3. Build an Emergency Fund: An emergency fund provides a safety net in case of unexpected financial setbacks. Rule of thumb- aim to save three to six months’ worth of living expenses in an easily accessible account. Everyone’s emergency fund needs will be different. To calculate your emergency fund needs- add the total monthly expenses incurred and multiply by 3-6 (calculate based on comfort). Make sure to include the commonly forgotten miscellaneous costs.
4. Manage Debt: If you have debts, prioritize paying them off. Start with high-interest debts first, such as credit cards, and work your way down to lower-interest debts. Debt is not always a bad situation, such as a new mortgage on a rental property that is turning a profit. There is always a caution against becoming “over leveraged” and owning too many liabilities- if there was an unforeseen emergency or life changing situation, you would be forced into bankruptcy.
5. Establish a Retirement Savings Plan: Begin contributing to a retirement account like a 401(k) or Individual Retirement Account (IRA). Take advantage of any employer matching contributions, as it’s essentially free money for your retirement. Most employer based retirement plans have a staged vesting schedule. Vesting in a 401(k) refers to the process by which an employee becomes entitled to the contributions made by their employer to their retirement savings account. It determines the degree of ownership an employee has over the employer’s contributions and the earnings they generate. It is important to know your employers vesting schedule to understand what you are entitled to if you were to depart from the company.
6. Build a Diversified Investment Portfolio: Once you’ve addressed high-interest debts and established an emergency fund, consider investing for long-term growth. Diversify your investments across various assets to reduce risk. There are a number of investing opportunities- investment properties, investing in the stock market and bonds, annuities, etc. It is a good idea to speak with a financial advisor to gain all options and available opportunities.
7. Understand Basic Financial Concepts: Educate yourself on key financial concepts, such as compound interest, inflation, and risk tolerance. This knowledge will help you make informed financial decisions. Financial literacy is key to understanding and growing your assets.
8. Review Insurance Coverage: Make sure you have adequate insurance coverage, including health, life, auto, and home insurance, to protect yourself and your family from unexpected expenses. Insurance is an expense no one enjoys paying, however, it does come in handy when life throws unexpected curve balls- and it will.
9. Track Your Credit Score: Regularly monitor your credit score and take steps to improve it if necessary. A good credit score can help you secure better loan terms and interest rates which will save you loads of money over time.
   • You can access free credit reports from Experian, TransUnion, and Equifax
10. Avoid Lifestyle Inflation: As your income increases, resist the temptation to significantly increase your spending. Instead, prioritize saving and investing to achieve your financial goals faster. There is no need to “keep up with the Jones” unless that is your personal financial goal. To avoid lifestyle inflation eating away your hard earned dollars, resist the urge to spend every cent of a new bonus or raise on materialistic things. Instead invest the extra funds or buy assets that will start working to create multiple revenue streams.
11. Seek Professional Advice: If you feel overwhelmed or unsure about managing your finances, consider consulting a financial advisor. They can provide personalized guidance and help you create a comprehensive financial plan.
12. Stay Disciplined and Patient: Building financial stability and wealth takes time and discipline. Warren Buffet did not make his billions over night, and Rome certainly was not built in a day. Stay committed to your financial goals and adjust your plan as needed to stay on track.

Remember, personal finance is a journey, and everyone’s situation is unique. Be patient with yourself and stay focused on your goals. By taking these steps and continuously learning about finance, you’ll be on your way to achieving financial success.