Have a Plan
The core theme of this article, and my financial approach, is to reflect on your current financial situation and take actionable steps to improve it if you're unsatisfied. When it comes to financial planning, don’t let perfection be the enemy of progress. You won’t find the "perfect" plan, much like you won’t find the "perfect" workout. What matters is committing to a plan and sticking with it.
There are several ways to approach creating a financial plan:
Outsource to a professional: Work with a financial advisor, ideally one who holds the Certified Financial Planner (CFP) designation.
DIY and seek guidance: Create your own plan and seek professional input to identify gaps.
Do it yourself: If you’re comfortable with it, create and manage your own plan. Personally, I used resources like White Coat Investor's Fire Your Financial Advisor Course and their Bootcamp book to guide me. The book even includes an example financial plan that I modified to suit my family’s needs.
If you're married, remember that your financial plan should be a joint effort—this isn’t just about your individual goals, but your family’s financial health. Review it together, at least quarterly, and adjust as needed.
Earn More Than You Spend
One key to financial stability is ensuring that you consistently earn more than you spend. While leveraging debt to improve your financial situation may be reasonable in certain circumstances, over time, the goal should be to generate a positive cash flow.
Many people improve their finances by enhancing their skills or earning potential. Some invest in certifications or higher education, while others take on side gigs or jobs with higher pay. Tools like Empower, Monarch (which I use), and Credit Karma can help track your spending and net worth, providing insight into your financial health.
The first step is to calculate your net worth—view this like a pretest; don’t be discouraged if it’s not where you want it to be. Once you have a clear picture of your financial situation, aim to ensure that your income consistently exceeds your expenses. If debt is growing, consider ways to earn more, such as through additional work or upgrading your skills, or focus on cutting back on non-essential expenses.
The 8th Wonder of the World: Compounding
Warren Buffett famously referred to compound interest as the “8th wonder of the world,” and for good reason. The beauty of compounding lies in its ability to turn small, consistent contributions into significant wealth over time. However, it’s not just about earning interest on investments—it also applies to the negative compounding of debt. If you only make minimum payments on high-interest debt (like credit cards), it can quickly spiral out of control. Therefore, clearing high-interest debt should be one of your top financial priorities.
The most important element of compounding is time—the earlier you start, the more powerful the effect will be.
Discuss Finances with Your Partner
Finances are one of the leading causes of divorce in the U.S., and for good reason. Differences in spending habits, financial goals, and lack of transparency can create tension in relationships. Financial infidelity is real, and it's crucial to be open and honest with your partner about money.
One key insight is to establish financial autonomy within your relationship. Each person should have money they can spend without judgment—this could be as small as $5 per month, but it’s important to maintain some level of personal financial freedom. If one person’s spending seems irresponsible (e.g., excessive spending on alcohol or gambling), it’s time to address the issue and seek professional help.
Remember, open communication and mutual respect are the cornerstones of a strong financial partnership.
Master the 5 Essential Financial Skills
Throughout your life, you should aim to develop and refine the following financial skills: earning, saving, investing, spending, and giving. Mastery of these skills takes time and practice.
Earning: Build skills that increase your income and earning potential.
Saving: Focus on increasing your wealth accumulation ratio.
Investing: Educate yourself on investing and begin allocating money toward assets that appreciate over time.
Spending: Be mindful of your spending—prioritize purchases that bring lasting value, rather than impulsive or short-term gratification.
Giving: Understand the importance of generosity. Giving doesn’t have to be a large amount; even small contributions can create positive habits.
Start with the basics, and as your financial understanding grows, refine your strategies in each of these areas.
Protect Your Assets
Protecting your wealth is just as important as growing it. Here are some key steps:
Monitor your credit: Identity theft and fraud are increasingly common in the digital age. Use free tools like Credit Karma to monitor your credit score and identify any potential issues. Check your financial transactions daily using apps like Monarch or Empower for any suspicious activity. If you’re concerned about identity theft, consider subscribing to services like LifeLock, which offers credit monitoring and protection.
Insurance: Make sure you have the right insurance coverage to protect against catastrophic events. Your coverage should be tailored to your individual or family needs, whether it’s life, health, home, or auto insurance.
Automate Your Finances
One of the best ways to take control of your finances without constantly thinking about them is to automate as much as possible. This can be done through the Ramsey bucket system or the “give every dollar a job” method.
Set up automatic transfers into retirement accounts, bill payments, and savings so that once your accounts are set up, you spend minimal time managing them. I’ve found that it’s easier to set up automated systems once and forget about them than to revisit them regularly. It typically takes less than 10 minutes to set everything up, and once it’s done, you’ll only need to review it periodically.
To monitor your progress, use a financial tracking system to consolidate all your accounts in one place. Checking your financial status daily only takes a few seconds and keeps you on top of things.
Disclaimer:
This month’s article series aims to equip you with tools and resources to improve your financial well-being. I am not a financial advisor or expert, nor do I claim to be one. Nothing I write is intended as individualized financial advice. Rather, my goal is to provide a framework for thinking about money in a way that supports long-term stability and fulfillment. If you need personalized guidance, consult a financial professional.
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