Up until I got a job at a financial firm, I had no money. Seriously — I was living paycheck to paycheck, wondering how I was going to come up with rent for the next month. Now that I am involved in the financial world daily, I decided I wanted to grow my own bank account and really start taking my own personal finances seriously. From August 2018 to now, I’ve managed to increase my net worth by $10,000.
Of course, it’s not where I want it to be yet — but it’s been a huge help in my financial future. I’ve been able to begin to pay off student loans, something I’ve never done before. I’ve also raised my credit score. I have health insurance for the first time in my life. I have an emergency fund that can cover me for up to six months. All in all, while I still have a lot of work to do, I’m incredibly proud of what I’ve accomplished in a year.
Here’s how I increased my net worth by $10K in one year:
1. I researched.
Ask anyone — I love learning about things. As soon as I see a movie, I immediately look up random facts about it. If I have even the smallest question about something, I google it. So, when I first got interested in finances, I read as many articles as I could. I created an RSS feed that updates daily with blog posts just from financial sites. I looked into phone apps that would help me stay on track. I made sure I knew the ins and outs of everything I was going to be doing for the next year so I knew what I was actually doing.
I still do this, as well — not as feverishly, of course, but I’m still in the building stages. Once I get to a place where I can start contributing to retirement, for example, I’ll be researching all of my options to make sure I choose the right one. Arm yourself with knowledge.
2. I created a plan.
After having all the facts, opinions, and experiences laid out in front of me, I began to plan. What was my goal for this first year of my personal finance overhaul? What did I want to accomplish? I decided on three things:
- Open a savings account and start contributing to an emergency fund.
- Get to a point where I could start contributing a large sum of money towards my student loans.
- Figure out a way to earn more money.
From there, I broke these steps down further:
- Open a savings account and start contributing to an emergency fund: I calculated how much money I could realistically put away each month, then divided that up by every pay period, and immediately put it into savings when payday hits.
- Get to a point where I could start contributing a large sum of money towards my school loans: I determined if I could pay off loans while still in school, then determined what amount I could manage that wouldn’t put me in a bind for other expenses.
- Figure out a way to earn more money: How can I use skills I already have to earn extra cash?
3. I created a budget and started tracking my expenses.
All of these goals could not be completed unless I had set a strict budget for myself and tracked where every cent was going. I’ll admit it: I’m the extreme case who has a color-coded Excel spreadsheet tracking literally every cent, but that’s what worked for me. Whether you’re checking daily or weekly (I wouldn’t recommend checking less frequently than that), be sure to, at the very least, keep an eye on your account balances.
I was also just genuinely curious about where most of my money was going. (Hint: it’s food. It’s always food.) Here’s how I broke down my expenses every month:
- I wrote out where all my money would be coming from for the month and what my total post-tax income would be.
- I kept track of when that money would hit my bank account.
- I took my income and marked off 20% for savings, setting a specific date for myself to transfer it over.
- I wrote out all my necessary expenses for the month (bills and loans), and determined that total.
- I subtracted that total from the amount of income left after my savings contribution.
- I marked off 30% of that amount and transferred it to my “fun money” account.
You’ll notice I determine the amount of savings before I calculate my necessary expenses. This is important — you want to pay yourself first before taking care of anything else. You’ll also notice that with this method, I have a leftover amount of money with no job assigned to it. The first year I did this method, I didn’t worry about that extra money — I was more focused on getting this system in place and seeing if I did actually have extra money left over after all my payments and transfers were made.
I would not recommend doing this. If you can give every dollar a job, do it. I could have been putting all that extra money towards retirement or loan repayments.
4. I opened multiple bank accounts.
Before starting, I had one checking account with Chase, and one checking account with a mobile bank called Simple that I never used but still had open. I also had a bank account from my hometown that had been open since I was 5. It had $6.00 in it. Here’s how I now allocate my accounts:
- Chase checking account – for bills, loan repayments, and other necessary expenses.
- Chase savings account #1 – for my emergency fund.
- Chase savings account #2 – for long-term savings goals (I’m currently saving up for a new laptop, for example).
- Simple checking account – for “fun money.”
The childhood bank account is obviously closed. RIP. (I did get that $6.00 back, though.)
5. I started paying attention to my credit score.
You’ll notice that I don’t have any credit cards or accounts. This is intentional. From personal experience, I’ve seen credit burn my family directly, so I vowed to not have to rely on credit to improve my credit score. Of course, you don’t have to do this — if you’re good with credit repayment, it doesn’t hurt to have one. I do eventually want to be able to either open a mortgage or get a car or do things that rely on good credit, however, so I still pay attention to this. I’ve had my bad credit score bite me in the butt in the past, and I was tired of it. Because of my changes, like focusing on debt repayment, my score has increased by 50 points in the last year.
6. I began tracking my net worth.
Now for the fun part! While I obviously could tell the health of my bank accounts because of my overly-obsessive budget tracking, I wanted to put everything together and see the progression as a total lump sum. So, I downloaded an app called Personal Capital and plugged in all my info. It’s nice because it tracks your bank accounts, loans, and investments all in one place and gives you your total net worth number, along with assets and liabilities. Seeing those numbers change and rise is a great motivator, and it’s nice to have all that information in one place.
I compared last year’s amount to this year’s and rewarded myself.
As of August 1st, one year has passed since I began this journey. Seeing the amount of money I had from last August compared to now is so amazing. I can’t believe it. So, I rewarded myself by (correctly budgeting for, of course) purchasing new work outfits.
Don’t be shy about celebrating your successes. You’ve worked hard, and you should be proud of yourself!
Amy Lancaster is a social media marketer and content creator for a small boutique firm in Milwaukee called Milborn Advisors. She’s also a freelance writer and a web design student, so if you ever see her on her computer too much, give her a nudge and go tell her to get outside once in a while, okay?
Image via Unsplash