Are you feeling like you are struggling in this financial climate and don’t know where to turn? April is National Financial Literacy Month and in this week’s video, Rebecca is giving you a starting point for managing your personal finances. She teamed up with financial planner, Matt Gunter of Financial Growth Partners and he will share his expert advice on how to start saving.
Where Financial Planning Begins
Financial Literacy is a broad topic and can take you down a variety of “rabbit holes” of information. It can also be difficult to know where to start! Let’s say you’re a twenty-something year old who is just starting out. The best place to begin financial planning is to simply get organized and understand where our money is going.
You need to know how much money is coming in, how much is going out, and how much you are able to save. That is the baseline of where you can then start to build your financial plan.
Goals of Your Financial Plan
Everyone has different financial goals in mind. It could be simply organizing and saving within your bank account. You might be trying to save to buy a home or want to put money toward your retirement strategy. Whatever your financial goals may be, you will need a cash flow to fund that strategy.
Funding Your Financial Strategy
It all starts with understanding how much money is coming in and what you are spending it on. Then, you will be able to see how much you have left over at the end of each month.
This is when you will actually be able to capture what’s left over at the end of every month and put it somewhere safe. You will then develop a habit of saving so, you are capturing that money and can begin to write a budget.
Starting Your Budget
To start your budget, write down your expenses, incomes, and then see what you have left over at the end of every month. It’s important to be honest with yourself… If you go to Starbucks every day and spend $10 on a coffee, put it in your budget because now you at least know where the money’s going.
The base expenditures that you might not realize is eating out, subscription services, and gym memberships. It’s easy to leave these out as expenses because they either aren’t consistent or you forget you have them. It may sound super basic, but creating the habit and understanding how your money is moving is really the hardest part of financial planning.
Capturing Cash Flow
If you look at this chart below, you can see that when you get paid, that money goes into your checking account. This is most likely a spending account so naturally as the money flows in you are going to want to spend it.
You’re going to spend it on bills first and then to enjoy yourself. Everyone has some kind of lifestyle preference like going on vacations, eating out, or shopping. Typically, after you spend on these things, you only end up saving what is left over after.
The Saving First Habit
The problem with this is that it is not consistent or repeatable. Every month there might be a new expenditure and you might not end up actually saving anything. To resolve this, along with paying your bills, we recommend simply saving as soon as that money hits, your account.
Setting aside that savings first, gives you permission to then spend the remainder. You can go out to dinner with family or buy that extra toy for your child without feeling guilty because you have already saved.
How To Start Saving First
There are many ways you can create the habit of saving first. The payroll company your employer uses can deposit money into multiple bank accounts; one can be a checking account and the other can be a savings account. You can then dictate how much of your pay goes into each account. The goal of all this is to set up a repeatable plan of paying yourself first.
You can also simply set alarms on your phone that remind you to move money into the proper accounts. Whichever method is more sustainable and works the best for you is what is recommended.
Learn More About Financial Literacy
Everyone is different and has different reasons for wanting to start saving. Whatever the reason, creating a budget and saving first is the best place to start. Once you have the cash flow, you can then investing your money into additional financial strategies or simply filling up “buckets” of money and diversifying it into multiple places.
If you have any questions make sure you reach out to Matt at Financial Growth Partners and if you’re looking to buy, build, or refinance, make sure you give us a call and we’ll be happy to help. Don’t forget to subscribe to my channel so you don’t miss our next video in our Financial Literacy series!