When it comes to finances, I want each of us to go into this year with more than resolutions and dreams. This year, I want each of us to be able to manage our finances confidently and have enough knowledge to share with others. So, in 2022, I’m challenging you (and me) to move confidently with our finances. If you’ve been saying it’s complicated, difficult, too much - then I challenge you to try one thing to level up this year. Don’t let your finances overwhelm you, identify your level, and take one step forward. If you don’t know where to start this year, here are a few ideas…
Level 1: Figure out what you make, what you spend and what you owe.
Track and monitor your spending and your debt. Take inventory of your income, and understand what percentage you’re saving, what percentage you’re saving for retirement and what percentage is going towards debt repayment. The idea here is to reduce your spending and debt so that you’ll have funds for saving, investing and achieving your big goals, big priorities.
Establish an emergency fund
Establish savings for other purposes
Establish ways to monitor your spending
Determine your level of debt and create a plan to eliminate it.
Level 2: Set priorities and make plans
Some financial experts would have you believe that their priorities should be your priorities and if you don’t do things in a certain order, you’ve failed. Once you have a grasp of your basic financial condition, you get to set your own priorities. For some, that may mean early retirement, for others, that may mean buying a home or paying off college debt. The point is, once you’re aware of your spending and saving habits, you are in a position to set the priorities, in order of importance to you.
Automate your savings and investments.
Contribute to tax deferred retirement accounts to reduce taxes. Consider contributing the maximum amount each year.
Determine your number one financial priority and focus your automations, attention and energy on obtaining it.
Level 3: Investing
If you’re contributing to your employer’s retirement fund or to an IRA, then you’re already an investor. And if you’re contributing the maximum annual amount to these funds, then you’ve used your retirement savings to reduce your taxable income. You might have purchased a home, saved money for college or achieved some other financial goal but you’re ready for another level.
Determine how comfortable you are with investment risk (how much risk you are willing to tolerate)
Determine the amount you will invest monthly, quarterly or annually
Determine what investment makes sense based on your risk tolerance and the amount that you have available (i.e., real estate, stock market, business)
Clearly, these levels are not set in stone - they aren't gospel. But they should illustrate that you have accomplished significant things in your financial life and you shouldn't compare your accomplishments to others. You may be in between levels or get stuck sometimes - it’s ok. Give yourself some grace as you figure out your next move, but no matter what - keep moving. Don’t allow fear or uncertainty to keep you from moving forward. Allow yourself to make mistakes, permit yourself to take time to learn, but keep moving. If you would like a little help moving to your next level, join the next Empower webinar series or take an Empower online course. And if you’re not ready for that, no worries, join our Facebook group for free tips on personal finance.