Photo by Joslyn Pickens
Let’s face it: money is hard. Thinking about money is hard, and thinking about how to plan your money is hard.
But financial planning isn’t just for people in expensive, black suits and fancy mahogany desks.
It’s something everyone should know about, regardless of where you land on the proverbial totem pole. When you know how to plan financially, you have the tools to start taking control of your money. And when you control your money, you are able to set goals that lead to a more sustainable and secure future.
Wilbert Guilford is here to equip you, the average person, with the know-how and the how-to to navigate the erratic and almost always intimidating world of financial planning.
Thinking about Money: Knowing Yourself
The first step, of course, is to understand yourself and your current financial standing. There are plenty of money personalities out there, so be sure to get a handle on who and what you are when it comes to finances.
- Gather your bank statements, pay stubs, and any loan or investment documentation.
- Estimate your net worth by deducting all your total liabilities (debts, such as credit card balances, student loans, or mortgages) from your total assets (what you own, such as cash, investments, or property).
Photo by Brett Sayles
This gives you a snapshot of your financial condition. Your net worth is a good way of measuring your financial health.
Next, track your income and expenses for a month. There are budgeting apps and spreadsheets galore for anyone willing to explore, but a simple pen and paper works just as fine.
- Categorize your spending (rent, groceries, entertainment) to identify areas you might be able to cut back.
The classic 50/30/20 rule is a good starting point: allocate 50% of your income to needs (housing, utilities), 30% to wants (entertainment, dining out), and 20% to savings and debt repayment. This rule is a good starting point because it ensures you’re covering your basic needs, paving the way for some fun and flexibility, yet still saving for the future.
Thinking About Debt
Debt is the enemy of good financial stability. If you have any, which sometimes circumstances force us to get some, prioritize high-interest debt like credit cards. Consider consolidating all your debts into a lower-interest loan to simplify having to repay them.
- Remember, even small payments add up over time.
Thinking About Emergencies
Unexpected events are a part of life. That’s what spices life up. As such, having an emergency fund can be extremely helpful, especially when you’re dealing with car repairs, medical bills, or job loss. Always try, if ever possible, to save up on 3-6 months of living expenses.
- Every little bit counts. Start small and watch it go up, up, up.
Photo by Tirachard Kumtanom
Thinking About Goals
Financial planning isn’t just about surviving. It’s about thriving. Define your financial goals. Is it a dream vacation to the Maldives, a down payment on a house somewhere fancy, or a comfortable retirement?
Having goals helps you anchor yourself.
- Set short-term (less than five years), mid-term (5-10 years), and long-term (10+ years) goals to create a roadmap for your financial journey.
Thinking About Money: Saving and Investing
Once you have your emergency fund established and are tackling your debt, it’s time to explore saving and investing strategies. Look into employer-sponsored retirement plans like a 401(k), which often come with employer matching contributions, which is basically free money!
For individual savings, consider a high-yield savings account or a certificate of deposit (CD) for short-term goals.
For long-term goals, investing in the stock market offers a bigger chance for bigger returns but is also much riskier. So be careful!
There’s a variety of investment options available, from mutual funds (which gather money from several people to invest in a variety of stocks, bonds, or other securities) to ETFs (which are like mutual funds but focus more on exchange-like stock).
Do your own research and consider what you can stomach before rolling the dice.
Wilbert Guilford’s Financial Planning for the 99% is one step towards self-empowerment. Make the most informed decisions about your money with him as your guide.
Take charge of your finances and your future, and grab hold of your tomorrow by building a secure financial foundation that will help you get to where you want to be!
