Life can throw you curveballs, bringing unexpected events and expenses. That’s why building financial resilience in your life can be so powerful — and it starts with learning to have a basic sense of how your finances work and what you can do to make them work better for you.
If you’re feeling a bit uncertain or overwhelmed about how to get your finances in order, the first place to start is to define your goals. What is it that you want to achieve? It may be sticking to a budget, paying down debt, saving for retirement, building an emergency fund, or saving for a big expense like a car, a home, or a child’s education.
Let’s walk through four basics for building a more resilient financial life.
Step 1: Be SMART with your goals
Whatever your goals, We encourage you to put pen to paper to write them down. We like to use something called the SMART goal setting method, which stands for:
- Specific
- Measurable
- Action-oriented
- Realistic
- Time-bound
For example, if you want to pay off debt, start with the actual dollar amount of how much you want to pay down. That makes it Specific and Measurable. Then, get Action-oriented by defining the steps you’re going to take. If it’s paying down debt, maybe you can cut back on eating out or put your tax refund toward your credit card bill.
By making your goal Specific, Measurable and Action-oriented, you’ll be able to see if your goal is Realistic — and if not, you can adjust, like by extending the time frame. Speaking of time, the T in SMART stands for Time-bound: Give your goal an expiration date so you have a target in mind. Once you reach that deadline, you’re encouraged to make the next goal, and then the next — and that’s how we make progress in our financial lives.
Step 2: Be organized
Creating a more formal budget is the foundation of our financial lives, helping us see exactly where money is flowing so we can better allocate it to our many needs, wants and goals. Calculate every dollar coming in, including earnings from your job or any other sources, such as a rental property or side hustle. Next, track your expenses — everything from rent and gas to coffee and birthday gifts. Once you list all those expenses, separate them into two columns for needs and wants.
This part is going to be different for everybody. For example, we all need to wear clothes, but do you really need new clothes every month? Maybe you do if have a growing child or need a new coat — but maybe not, and maybe you can put new clothes in the “want” column.
Another helpful tip is using the 50-30-20 rule: Think about 50% of your budget going to cover needs like bills, food, housing, insurance, and utilities; then the next 30% to wants like streaming services, vacations, or new gadgets; and then the remaining 20% to savings — like your retirement account, stock portfolio, and emergency fund.
Step 3: Be realistic
Practice makes perfect, so think of your financial life similarly to playing a game of darts, where each triangle on that dartboard is a different aspect of what you said you were going to spend or save to reach your goals. The more you practice throwing that dart, the better you’re going to be at hitting the mark consistently.
Step 4: Get support
Financial literacy is simple, but not necessarily easy. The sooner you start budgeting, saving, and investing, the more time you have for your money to potentially grow and help you reach your goals. Even small amounts of invested money can add up over time, thanks to the power of compounding interest.
Our finances are such a significant area of our lives, So make sure that you’re working to build up your financial resilience today so that when you retire, you can live the kind of life that you’ve always envisioned. If you feel behind, don’t panic — just start today, and start as small as you need to.
We’re here to help, no matter where you are on your financial journey.
Source: Kiplinger
Content in this material is for general information only is not intended to be a substitute for individualized financial advice. Please consult your legal advisor regarding your specific situation.