Financial Planning for Beginners [6 Steps]
Commit to taking control of your finances
We can want to get better with our money all we want, but nothing will change until we actually take action.
The best way to take action is to sit down and create a plan for your finances.
First, create a written budget.
A written budget is a built-in accountability partner. Download my Monthly Budget Spreadsheet Template to start your budget.
After you log all of your monthly income, expenses, debt, savings, and investing, start logging your purchases every couple of days. What I do is every Monday, Wednesday, and Friday, I log into my bank accounts and log all of my purchases and bills that cleared my account.
This helps me not get overwhelmed at the end of the month; since I am staying on top of it every couple of days, it only takes me 10 minutes max.
Logging my purchases every couple of days also helps to keep me in check with my spending. Am I going over in my grocery budget? If yes, I can adjust the remaining weeks of the month and eat from the pantry.
Second, educate yourself on personal finance.
Make a commitment to cut back on one tv show a day and spend that time watching a YouTube video on personal finance, whether you are learning something new or just using it to keep yourself motivated.
Get term life insurance
One of the most important but often overlooked parts of financial planning is to get life insurance. Life insurance is something that a lot of people don’t want to talk or think about because well, it deals with death and leaving your loved ones. As hard as the conversation is, it would be a lot harder if you didn’t take these steps to help protect yourself and your family.
That is why I decided to partner with Bestow because term life insurance is something that I am really passionate about and is something to think about especially when you own a home and have a mortgage payment to make. Having term life insurance helps allow you to not have to help protect your loved one’s financial state if something were to happen to you.
Bestow is one of the easiest ways to apply for affordable term life insurance. They use data by asking medical and lifestyle questions in order to determine eligibility so that you don’t have to take off time from work or get blood work done or fill out paperwork like the traditional way. Bestow policies start from $10 a month if approved and have 10, 15, 20, 25, and 30-year policies available, ages 18 – 60 are eligible to apply.
Getting a quote is very easy, you don’t even have to put in your name, email, or phone number so that you don’t have to worry about getting spammed with an influx of emails and calls just for getting a quote. Policies are issued by an A+ rated carrier, and “Excellent” rating from real customers on Trustpilot.
>> Simply click here and fill out the quick form to get your term life insurance quote!
Create a plan to pay off debt
Next, create an action plan on how you are going to pay off your debt.
In your budget spreadsheet, list all of your debts and the minimum payments.
There are a few different debt payoff methods, I personally think they are all great and they all work well, the biggest tip is sticking to ONE plan and not jumping around.
The Debt Snowball Method
The first of the two methods is the debt snowball method. With this method, you list all of your debts in order from smallest to largest balance – regardless of interest rate.
Then, you pay the minimum payments on all of your debts. Any money left over at the end of the month will go to the smallest balance debt. Tackle that debt with vengeance…with all of your financial power focused on eradicating that debt and only that debt. Keep following this process each month until the smallest debt is paid off.
Once your smallest debt is paid off you are going to CELEBRATE. Do a happy dance, go out to eat, and then move to the next smallest debt until all of your debts are paid off.
While working the debt snowball method, do whatever you can to bring in extra money. Work overtime, find side hustles, or cut expenses in your budget. Anything you can do to put extra money towards your smallest debt.
The major pros of the debt snowball method is that it is extremely motivating to have small wins as you are paying off debt. Every time you pay off a debt and move onto the next one, it feeds that internal determination to stay the course.
The Debt Avalanche Method
The second method is the debt avalanche method. This method will save you the most money in the long run. With this method, you list all of your debts from highest to lowest interest rate.
Just like the debt snowball method, pay the minimum payment on each debt, attacking that first debt with vengeance.
The debt avalanche is the mathematically correct way, because you are paying off the debt with the largest interest rate in the very beginning, which in return will save you the most money throughout the course of your debt free journey.
The downside of this method is it can feel like you are never getting out of debt. If your highest interest rate debt is $30,000 and will take you 2 years to pay off, you won’t get a quick win.
Both methods are great ways to pay off debt. The important part is deciding what motivates YOU.
If having quick wins along your journey motivates you, then the debt snowball is best for you.
If you are a numbers person and seeing how much money you will be saving is motivating to you, then the debt avalanche is best for you.
Whichever method you choose, I am cheering you on!
Increase your income
We can pinch our pennies all we want, but sometimes it gets to a point where you’ve literally pinched all you can and the next option is to increase your income.
Or you are like me, and want to hit your financial goals FASTER… in that case, increasing your income is definitely the way to go!
Now a days, the best way to bring in extra income is an online job or side hustle. I’ve created a FREEBIE with 97 Online Business Ideas that can bring home over $5,000 a month!
I’ve also created a course called Dreamer To Profitable, which teaches you how I’ve created and grown a business online that now brings home more money than my day job.
It also teaches you how to do it so much faster than I did!!
Invest more for retirement
Whether you haven’t started investing or have been investing for years it’s now time to increase your investments!
If you are still learning about investing, I recommend Jeremy from Personal Finance Club’s course Build Wealth by Investing In Index Funds.
- Why you should invest
- How investing makes money
- Which stocks to buy
- How taxes work
- How to invest for kids
- Withdrawal strategies
- 8 hours of content
- Self-paced videos and exercises
- $79 for lifetime access
Next, increase your investments, even if it’s just $50 more a week or month set up on auto-deposit. Trust me, your future self will thank you.
Have an emergency fund
The purpose of an emergency fund is to prevent you from going into debt if an emergency happens.
I personally recommend saving up to 1 month’s worth of expenses as a beginner emergency fund and then build up to 3-6 month’s worth of expenses saved in a high-yield savings account.
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