Now that we’ve defined personal finance and are aware of what’s involved in managing your money, it’s time to learn how to dominate the game. The key ingredients to becoming a master of your finances: self-control and self-discipline.
We use self-control to know when to stop and self-discipline when we need to go.
Here’s the strategy to crush the personal finance game:
Step 1: Make a financial plan. As the saying goes, failing to plan is planning to fail. Start by establishing clear and realistic financial goals, such as “I will pay off my student loans in two years by paying $___ more per month” or “I want to save up a $20,000 down payment to buy a home in 1 year”. List out your goals and how and when you’ll accomplish them. Financial planning takes self-discipline to stick to your plan.
Step 2: Create a savings plan or budget and live below your means. A critical factor in not just accomplishing, but exceeding, your financial goals is to know clearly how you’re going to spend and save. It takes self-control to manage your spending and saving well.
Step 3: Establish an emergency fund. You’ll sleep better at night knowing you’re prepared for any unwelcome surprise life throws at you. Saving for your emergency fund will takes self-discipline but you should be able to accomplish this step relatively quickly.
Step 4: Pay off all loans that are not a mortgage. Start with the debt that has the highest interest rate, likely credit cards. Then move on to student loans and car loans. One popular method is to pay twice what the monthly payment is, which math tells us will pay off the loan twice as fast. Another common method is to pay a set amount, like paying $500 a month on a loan that has a payment of $300. There are many ways to reduce your debt – just choose one and take action! This will require self-control to make sure you have enough money left over each month to make the higher payments. Don’t worry about your mortgage, there’s plenty of time to pay that down later.
Step 5: Get a raise or find a higher-paying job. There’s almost nothing that will get you to financial freedom quicker than making more money. So use your self-discipline and go ask for that raise. Or put in applications for a new higher-paying job. It never hurts to ask!
Step 6: Start investing. In anything. Just something that will grow your money. Boy do we have some good investment recommendations here at Firreo. Self-discipline will come into play here to make sure you’re accomplishing your financial goals.
Step 7: Save aggressively for your financial goals. We at Firreo prefer the pursuit of financial independence (FI), but do some soul-searching and figure out how you want your life to play out. FI isn’t for everyone, though you’d be surprised how achievable it is, but maybe traditional retirement is better for you. Either way, use both self-control and self-discipline to chase down your goals. If you’re pursuing traditional retirement, make sure you’re getting every dollar of retirement savings matched by your employer. If you’re more of the FI type, start dumping your money into the investments we recommend.
Please note: If your spending is out of control and your bank account is regularly overdrawn, if you’re unable to make minimum payments on your credit card debt, if you’re at the point where you have to choose whether to pay your rent or buy groceries… these are all signs that you need to do a little prep work before you’re ready to take on the steps above. And that’s okay. Take a deep breath, get things under control, and come back to this page when you’re ready.
We’ve handed you the keys to dominating personal finance. Now go get started!
For lots more on how to crush the personal finance game and find early retirement, make Firreo your financial advisor. We’ll help you out of your job and on your way to financial freedom!