A 5-step guide to achieving financial empowerment in your household
Whether you are married or single it is important to your well-being to understand financial matters. Do you feel overwhelmed by your financial situation or do you feel empowered? Is managing money a chore or something you look forward to? Have you ever considered how your money management style or lack thereof could be the cause of stress in your relationships?
The importance of financial empowerment
Consider this scenario, Mary has a good job and feels she earns a competitive salary. However, when it comes to her financial picture, she believes that it will take care of itself. She’s been steadily progressing in her career and receiving raises, yet the number in her bank account has barely budged in ten years. Janice on the other hand works mostly part-time jobs while raising her family. She learned about managing money and tracking expenses and has slowly been adding money to her savings account. Janice finally feels she has enough of a cushion in her savings account to look at other investment strategies.
From all outward appearances, many would see Mary with her high-profile job and competitive salary and think Mary is more financially successful than Janice. However, when you dig a little deeper you see that having a financial plan has helped Janice build a nest egg while Mary has a money leak that is keeping her from getting ahead financially.
In order for you to become more like Janice you need to follow a 5-step plan.
Step 1: Identify your financial goals
The first step in this plan is to identify your financial goals. In other words, what do you want your future to look like? Do you want to retire early and have cash and investments that would allow you to do what you want when you want without having to worry about where the money is coming from?
Do you want to buy a new car with cash in five years? Do you want to buy a home with twenty percent down and pay off the loan in ten years? These are just examples to get you to start brainstorming your financial goals.
When doing this exercise do not censor yourself. You want to write down everything that comes to mind, even if your rational mind thinks it’s a crazy idea. At this point, you are simply creating space, dreaming big, and getting all your aspirations on paper. In a later step, you will prioritize these ideas and determine what makes sense to start doing now, what needs to be planned for, and what are really long-term goals that need long-term savings and investment strategies to achieve.
Step 2: Build a safety net
In today’s volatile economic environment, what seems like a secure job today, could be downsized tomorrow. Build up a safe account, savings account or money market account, that can support three to six months of expenses. If you have a commission-only job with variable earning potential then you might want as much as twelve months in this easy-to-access account. This account can also double as your emergency savings account. This account won’t earn a lot of interest, yet it is easily spent without penalty when you need it.
Step 3: Discuss with your partner
Step three for those who are married or partnered with someone, you should include your partner/spouse in these discussions. What do you both want long-term? What are your dreams and aspirations as a couple? Over fifty percent of marriages end in divorce and the number one reason is financial dissonance. One partner does not agree with what the other partner is doing and the strain eventually tears the relationship apart. If you don’t want to become a statistic, make these discussions a priority in your relationship.
Step 4: Create a budget
I know there are those of you who hate long columns of numbers, don’t like math, or have other challenges when you hear the word ‘budget’. If you don’t like the word budget then you can call it a cash flow or a profit and loss statement, as we are listing all of our income and expenses in one place to make it easy to see how we are doing that month. And yes, I recommend setting aside time with your partner at least once a month to update the budget and see how you are doing financially.
By taking the income and expense numbers that you have been tracking on a daily basis and putting them into the budget spreadsheet, you can see where you made progress on saving for those long-term financial goals or where an unexpected expense caused you to miss the mark.
Note: the brainstorming process you did in step one will become line items on the budget. These items will appear after your regular monthly bills are paid. In other words, you will need to have money left over from paying your rent or mortgage, electricity, gas, etc, and then allocate what has not been spent to these items.
For example, if you had a trip to Tahiti on your brainstorming list, you would add Trip to Tahiti as a line item, after you totaled your income minus expenses. If you had fifty dollars left after paying all your bills, you could allocate the fifty dollars to the trip to Tahiti account or you could split it between buying a new car and the trip, if buying a new car was also on your list. I think you get the idea. Of course, I would also make sure you are building an emergency savings account so if you do not have three to six months in an emergency savings account, I would suggest building up that account first and then go all in on your other desires.
The one caveat to this rule is I believe you need to have FUN, in order to keep with a budget. To that end I want you to find a way to have fun each month, possibly after you have updated your budget for the month, so you can associate budgeting with a reward. And fun does not have to cost money. Go for a nature walk or a local art exhibit, there are a number of options that are free or low-cost that you enjoy and won’t derail your financial plan.
Step 5: Continuing education
At the beginning of your financial journey, you can get by with minimal information and some short articles like this one. As you continue your financial journey you will want to accelerate your returns, which will lead to unfamiliar ideas and concepts. Most people are familiar with banking products, such as checking, savings, and certificates of deposit and many are familiar with simple security-type products such as insurance or stocks and bonds. However, there are a lot of other products available, such as real estate, artwork, collectables, and cryptocurrency, that are more involved and generally not something you want to rely on family and friends for advice. By learning more about these more advanced topics for yourself, you can make better-informed decisions and feel more confident when investing.
Conclusion
This may seem like a simple 5-step plan yet following these steps can help you build the life of your dreams. The steps are:
- Brainstorm your financial dreams/goals
- Build a safety net
- For those that are married, discuss your plan with your spouse. If not married, do you have a financial advisor or someone whose advice you follow? Then discuss your plan with them to make sure you are on the same page.
- Create a budget
- Continuing financial education
Josette Mandela is an MBA-trained author and financial wellness coach focused on teaching women basic financial skills. Before becoming an author and coach, she consulted for several financial institutions. Though the money was good, there was little job security. She saw women struggling to make ends meet and unsure how to get ahead financially. Josette decided to leave the corporate world and help other women become empowered money managers.
Connect with Josette at www.josettemandelathemoneygirl.com or www.facebook.com/themoneygirlontwitter.
