There are thousands of books, podcasts, websites, and numerous other resources out there sharing advice on personal finance. While everyone tries to put their unique spin on things, the reality is that success in personal finance comes down to several key concepts that are extremely simple. Personal finance shouldn’t be complicated. And if you can stay focused on the few easy changes that pack a big punch, you’ll be on your way to financial freedom in no time.
You can’t change what you don’t track.
If you never sit down and figure out where your money is going, it’s going to keep finding its way out of your wallet and into the pockets of someone else. Step one for anyone looking to change their finances is to sit down and assess your income and expenses. Without this very critical first step, you’re destined to spend the rest of your days in a miserable paycheck-to-paycheck existence.
Creating a spreadsheet to dump spending and income data is one of the easiest ways to start. If spreadsheets don’t do it for you, go old school with a simple pen and paper. Reference your paycheck, bank accounts, credit cards, etc., so you gather all the pertinent details of your cash flow picture. Once you have everything laid out, you can notice patterns and begin to create meaningful change.
Since I manage the household finances and I’m a spreadsheet person, that’s what we do. At the end of each month, I go through and assess how much we’ve paid on credit cards (since that’s our primary tool for spending), what went into our investment accounts, and if we need to dive into anything deeper.
Bring in more money than you’re giving out.
This one’s a no-brainer, but you can never hear it enough times. There are loads of solutions out there for budgeting tools and spreadsheets to help you manage spending. But if you’re blowing money like it’s going out of style, those can only help so much.
Based on what you’ve already done, you know your income and a ballpark amount of monthly expenses. Going forward, you’ll always want to be sure the latter is less than the former. Yes, of course, it’s a bit more nuanced than that. But at the core, you want to be sure not to overextend your spending and rely on credit or go into debt on a monthly basis to pay for things.
Plan for emergencies.
Life will happen. And you’ll be happy you planned for it when it does. Keeping an emergency fund is one of the best ways to combat the unexpected things life inevitably throws at you. The recommended amount for an emergency fund is 3-6 months’ worth of living expenses. Figure out your ideal number based on monthly spending. Then create a plan to get to that amount over a period of months or years.
A critical thing to remember about an emergency fund is that a little bit is better than nothing. Even if you can only contribute $10 a month at the beginning, that’s okay. As long as you start saving something and understand the value of the emergency cushion, you’ll be better off. The next time a tire blows, you can breathe easy knowing that you’re not at risk of missing next month’s rent payment to cover it.
You can only cut so much, but earning potential is unlimited.
The first time I heard this piece of advice, my jaw dropped. I had never thought about it this way before. As women, we’re often taught to pinch pennies. And we may be told the extra spending we’re doing on coffee or manicures are the thing that stand between us and mastering our money. But when you flip that idea on its head and realize earning more is the path to financial freedom, it can totally shift your mindset.
The opportunity to side hustle, pick up part-time gig jobs, and increase earning potential at work means you can make as much as you can dream (and reasonably have time to do). Get to flexing those entrepreneurial muscles or make an appointment with your boss to discuss the raise you deserve. Once you start earning more, plan for that money and ensure it’s working for you and your bigger financial goals.
Now go get after it!
Money management and personal finance shouldn’t be complicated. If you keep in mind these principles of personal finance: tracking, spending less than you earn, planning for emergencies, and focusing more on earning, you’ll find yourself spending less time obsessing over money and more time enjoying it.