Knowing that we need to sort out our money management is quite a leap from actually doing it. I know from experience. I studied commerce, I worked at a bank — I, of all people, should know this stuff. Yet I didn’t sort out my finances for years. I know. I know.
Honestly, it just felt overwhelming. Where do I even start? Does it even matter if I have no money? Surprisingly (or not), the answer is yes because, at the very least, you can figure out where your money is going. More importantly, you can start building better habits, avoid mistakes, and set yourself up for success in the future. When I took the time to sit down and think it through, I realized that it doesn’t need to be difficult. Simple works. I’ve tried and tested the following four-step plan out myself, and thought that if it helped me, maybe it’ll help someone else, too.
1. Sort out your retirement savings (AKA superannuation, for Aussies like me)
This is for your future self. If you’re Australian, your money is going into superannuation whether you like it or not, so at the very least, make sure it’s working for you. You don’t want to be paying more in admin fees and insurance policies than you need to be. I at one point had five accounts (seriously, why), and what was even worse was that none of them were good. They charged high fees and had pretty disappointing results. Some things are worth collecting — accounts that cost you too much money are not one of them.
For those of you who don’t have mandatory retirement savings plans, it is even more important to educate yourself and set up a plan that works for you. Start with your company’s 401(k) if you are lucky enough to have that benefit — if they offer to match your contributions, that’s literally free money. I am not kidding! No one is going to care more about your money than you do, so take advantage of any and all perks at your disposal.
2. Pay back those high-interest debts
Anything we owe money on isn’t really ours. Debt is a tool, and it’s up to you to use it wisely. If you feel like your debt is out of control, it probably is. High-interest debts, like personal loans and credit cards, can grow so much faster than we expect, and before you know it, it feels like we’re drowning. That’s why I suggest paying back as much as you can as quickly as you can. You’ll feel so much better when those debts are gone. Oh, and if you can, get a summer job or pick up a side hustle to help you start paying off your student debt. Mom and dad may offer to pay it for you, but trust me, it’ll feel more rewarding when you pay it off yourself.
3. Build an emergency fund
You never know when disaster will strike, and you’ll suddenly need money. I’ve seen $500 bandied about as the “magic number,” but where does that come from? Is that really enough? If I lost my job, how long would an extra $500 last for? If I get sick and can’t work, does $500 even cover the medical bills? If my car broke down, could I get it fixed for $500? Your emergency fund has to realistically cover the emergencies in your life. Last time I checked, $500 wouldn’t even cover a week’s worth of rent and food for me.
Possibly the most underrated and misunderstood of them all. I grew up thinking that if I worked hard and saved my money, I would be okay. But it’s just not true anymore. You can’t just put your money in the bank — you have to do more. Investing is the only way to build long-term financial security. If you’re not putting your hard earned dollars into something that is at least keeping up with inflation, then I’m sorry to say, but you’re going backward. Here are a few different articles to get you started on investing:
- 4 Basic Investing Techniques Every Total Beginner Should Know
- Everything You Wanted To Know From A Lifelong Investor But Were Afraid To Ask
- How I Got Over My Fear And Became Good At Investing
- Breaking Down The “Personal Finance Index Card Everyone Should Read”
- The “Second-Level” Rule: How To Think Like A Pro Investor (From An Expert)
Yes, I’ll admit it is pretty daunting to get started, but it gets easier over time. Before you know it, you’ll have a diversified portfolio — it’ll take you a couple of years, but it will happen.
And there you have it. I hope this has given you some direction and reassurance that managing your money can be simple. If you take nothing else away, then I hope you’ll remember this: Don’t leave it up to chance. You are the master of your own financial destiny. It’s not too late to start today.
Liya is a traveler and lifelong learner. She runs alpacacap.com which provides financial education for real life, because sorting out your finances shouldn’t take you hours. This is the plan that she uses today.
Image via Unsplash