Personal financial planning is a difficult topic for many people. It was for me for the longest time, so I did what majority people do: ignore it as much and as long as possible. I graduated with BS degree in finance but had no clue how to plan my own financial life. I got a government job and thought that I am safe. That’s, at least, what everyone kept telling me. I did not know which questions to ask and I did not know whom to ask. It wasn’t until last year when I decided to attack this scary topic and learn everything about it. It turned out that, in fact, this is very easy and you do not need any financial advisors to get it all right. There is a simple formula that you can use for your personal financial planning and you will be ahead of the game. In this post I will briefly share all the components of this formula and in my later posts, I will dig deeper. Learning this formula really helped me to slow down in life and stop stressing about finances.
Step #1 in financial planning is stop overspending
It may not be the first thing that you thought of when I said that there is a simple formula to personal financial planning. But please, hear me out. I’ve read a lot of financial books and listened to many financial experts and self-made millionaires. The number one thing that is ruining people’s financial life is overspending. Americans are spending like there is no tonorrow… If you would’ve met me 5 years ago, I was totally different person. I was traveling almost every single weekend. Besides that, I was spending money on designer shoes and bags. I worked hard and this was my reward for working so hard. Later I just came to realization that I don’t want to live just for the weekends. I don’t want to work hard to buy another pair of Louboutin shoes. What I prefer instead is to have less things, but be more present in the moment. I don’t want to work hard all my life to end up in a house full of things that will go to waste. It was very hard in the beginning, but I did cut my expenses hard and now have fully funded saving and retirement accounts. A little tip is that when you actually need to spend money on your needs, be sure to use Rakuten. You can install extension on your browser and app on your phone. It has great cash back. Use my link to get extra $30 when you sign up and spend your first $30. You don’t have to use my link, use the one from your friends. Just make sure to use somebody’s code to get that extra cash.
Step #2 is save $1000 for emergencies
The sad truth of today’s world is that majority people don’t even have $1000 saved for emergencies. When emergency happens they go into debt, making big banks rich by paying high interest. I suggest creating a saving account at capital one 360 and put $1,000 there. As of january 2024, they are paying over 4% in jnterest, which is more than a regular big bank bank would pay. Take few minutes out of your day, open a saving account at capitol one and put $1,000 there or come up with a plan how you will do that in the near future.
Step #3 in financial planing formula is payoff debt
Debt is your worst enemy… Especially credit card debt, which has very high interest. You and I work so hard, we should enjoy those money, not the banks. A practical step is face your situation. Write down all debt that you have (except your morgage) and make a plan how to pay it off. Because you have cut down your spending in step #1 of your simple personal financial planning, you will have extra cash. Start with either your smallest amount, or with the highest percentage. Choose whatever is easier for you and what will feel like an achievement. Put as much as you can towards it and make minimum payments on the rest. Mortgage is the only one that you should have left. But get rid of all other debts as soon as you can.
Step #4 is open and fund Roth IRA
Opening and funding roth IRA account is one of the best things you can do for your future. So many people keep working and are not looking towards future because they have nothing there… They are afraid that they will have no money… Honestly, this is the step that I struggled the most with. I knew it is an investing account, but I did not know where to invest money, which stock to choose… But I found the answer. Go to Vanguard.com (you could also choose fidelity or schwab, it will not make big difference) and open Roth IRA account. Try your best to put the maximum that it is available for the year (the limit is $7,000 for 2024) and INVEST IN TARGET END DATE FUND. This is it. It is that simple. Choose the date you plan to retire (the earliest you can do is when you are 59.5 years old) and search for that fund. It will rearrange your investment closer to your retirement day and will move your money from stock to bonds. If the market crashes (like it did many times), you will not lose your funds.
Step #5 in your personal finance planning is finish your emergency fund
Put at least 3 months of expenses in your capitol one 360 saving account. You just have to be sure if something goes bad, you have that safe net. You won’t have to drown in debt because you have made right financial decision. I like capitol one 360 saving account becausewhatever money you put there, will be available to you. My family’s emergency fund is in that bank. If I need money, I just make a transfer from that saving acount to my checking acount.
Step #5 is save for big events coming up
I highly suggest to plan ahead for your big events or trips coming up in advance. My personal reccomendation for such saving is to put them in US treasury bills. Treasury bills have 0 risk and higher interest rate than capitol one bank. As of January 2024, the interest rate is over 5%. If you are saving for something big and won’t need those money for the next 6 months, put them there. After 6 months you can reinvest. I buy my treasury bills through Public app. Use my code if you decide to sign up for Public.com. When you use my link and deposit $1,000, you will earn $20 of an asset of your choice.
Step #6 in personal financial planning is to payoff your morgage
Nothing feels better than knowing that your house is paid off. Whatever happens in life, you know, you have roof over your head. Payoff that debt and enjoy your life to the fullest.
Ever since I decided to live more simple and intentional life, I wanted to simplify every part of my life. Finance is not exception. I spend over a year taking classes, reading tons of financial books, listening to many podcasts. It turns out that it is not that complicated. If you follow my formula for simple personal financial planning, you won’t have to fear the future. Make smart decisions now, so that your future self, will thank you later. Let me know in the comments the myth you believed about personal financial planning. I really hope that this article is helpful and you will make smart choice regarding your finance.
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