No matter your title, position, or tenure, you can be a leader. But, before you can successfully lead others, you need to be able to lead yourself, and that includes the area of personal finances. Despite what some may tell you, you do have the ability to control your finances. The power lies with you.
If you always view your finances as out of your control, then your spending will always be out of control. But, if you take charge of what you have, plan ahead, and do what’s best for your long-term goals, you can feel confident and secure in your current and future financial state.
Three key areas that most financial experts agree you can take charge of right now are your budget, emergency fund, and retirement savings. And, while taking control of them might seem overwhelming at first, with a little time and effort, you’ll be back in charge of your financial future. You simply need to determine your personal financial goals, make a plan, and stick with it. Just remember that the hard part is that third step – sticking with it. It doesn’t matter whether you wrote up your own plan or paid a big-name financial planner to create a plan for you since according to financial planning experts and authors, Rick Kahler and Ted Klontz, “over 80% of financial planning recommendations that are made are not implemented.” So, it is up to you to maintain your vision and motivation to reach your financial goals.
Budgeting
Most financial experts agree that everyone should have a plan for their spending. And, while budgets often get a bad rap, they’re really just a plan to ensure you spend your money with intent. As leadership guru John Maxwell said, “A budget is people telling their money where to go instead of wondering where it went.”
To create a budget, you need to follow several steps:
• Identify how you’re currently spending money.
• Decide if your current spending habits are what you want them to be and if they will help you accomplish your short- and long-term financial goals.
• Allocate every dollar you expect to spend over the next pay period. According to Tim Maurer, co-author of The Financial Crossroads, this should include your regular fixed expense, such as rent and utility bills, your variable expenses, such as groceries and gas, and irregular expenses, such as your annual homeowners’ association dues or quarterly insurance premiums.
• Track your spending each month to ensure you’re sticking with your plan.
If you’re not perfect starting out, just keep trying. In fact, Dave Ramsey, finance author and talk show host, says you need to allow yourself at least three months to get all the kinks worked out. Remember, it’s all about choices. And, the great thing is you get to choose how you want to spend your money.
Emergency Fund
Another essential area of your budget is saving for an emergency fund. According to Money magazine, 78% of Americans will have a major negative event in a given ten-year period of time, but, according to the National Foundation for Credit Counseling, a third of Americans have no emergency savings. And, of those who do have savings built up, 57% don’t have enough to sustain them through a true emergency. Don’t let an unexpected event find you short on cash.
An emergency fund can save you from more than just the financial hardships that come from a job loss. Your emergency fund can also help you out if a medical emergency comes up, your car dies, or you have to replace your roof. So, set aside a predetermined amount each month to put toward a savings fund. Once you reach your goal, then you can allocate that monthly amount to other savings goals, such as retirement or that dream vacation.
Dave Ramsey recommends you keep this money somewhere you can easily and quickly get to it. Keep in mind, though, that your emergency fund is for real emergencies. Finding an awesome deal on a car or wanting to update your wardrobe doesn’t count. And, if you’re faced with an emergency and use the funds, make sure you build it back up as soon as you can.
Retirement
The Huffington Post reported that in 2010, the percentage of Americans who have less than $10,000 in retirement savings increased to 43%. And, according to the U.S. Department of Labor, only 43% of Americans have calculated how much they need to save for retirement.
If you’ve dealt with an elderly parent or watched your own parents deal with aging grandparents, you know how vital it is to have a retirement plan. It not only makes your life easier, but the lives of your caregivers easier as well. You have to take control of your future, both for your sake and your family, and that means saving a realistic amount of money to carry you through the years you chose not to or are unable to work. From travel to housing to medical care, your retirement savings needs to be adequate enough to cover all of your expenses. The Department of Labor suggests most people will need 70% of their pre-retirement income to enjoyably make it through their post-work years.
Both Dave Ramsey and Tim Maurer say saving 10% of your take-home pay starting by your early 30’s will result in a more than adequate amount. Also, if your employer offers a 401(k) plan, use it! Have them deduct your contribution automatically so you’ll never face the temptation of using that money on a whim. Once you start building your retirement savings, Dave Ramsey recommends finding a reputable financial planner to help you maximize your investments and make your money work for you. Whether you envision retiring at 50 and traveling the world or working until you’re 70 before enjoying a comfortable life at home near friends and family, with planning you have the power to make your dream a reality.
The great thing about money is that it doesn’t have a mind of its own. You are in control of how you spend and save. So, sit down, make a plan, and stick with it! The only way you end up somewhere of value is on purpose.
Disclaimer
These guidelines do not constitute expert financial advice. Make sure to consult with a trusted professional financial advisor to determine the right plan for your financial future.
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