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This week I have a killer piece from Jon Dulin over at Money Smart Guides. Not only is Jon a crazy great guy, he’s been at blogging about money for a long time. He’s been in debt, made some stupid money mistakes (hey, haven’t we all) and gotten himself back on track to grow his net worth to over $700,000! And now he blogs full-time and helps people CRUSH their finances. He’s got a wealth of wisdom to share about how you can get your finances back in shape and develop some MAD money skills!! Enjoy!!
Are you struggling with your finances? Are your money skills sorely lacking? Do you want to make a change but don’t see any way to make it possible?
For you, better finances are just a dream and unless something drastic happens, like winning the next Powerball lottery, you expect this trend to continue.
But there is hope. I was in your shoes. I used to be an out of control spender who was in over $10,000 worth of credit card debt. I had no job and no money skills.
Now I run my own business, get to spend ample time with my daughters, and have a net worth of close to seven figures.
And I didn’t win the lottery to make it happen.
I took specific steps to improve my practical money skills, change my finances and my life for the better. You can too.
I am going to lay out the things I did to go from less than nothing to having enough money where I don’t worry or stress about it.
Stop thinking you can’t do the same thing. With these steps, you too can turn your dream into a reality and become a money skills master.
The Ultimate Money Skills Guide To Get Your Financial Life In Order
#1. Get To Know You
This is the first step for a reason. It is critical that you get to know you. But what does this mean?
It means a couple of things actually.
First, if you are in credit card debt, it means you need to take some time and dig into the real you. What issues are going on in your life that are causing you to spend money you don’t have?
While most people think they have a spending problem, the truth is, most times the issue is much more than that. And until they address the root issue, they will forever be in the perpetual cycle of credit card debt.
Take me as an example. I was stuck in the debt cycle after college. I thought I had a spending problem. But spending money was the symptom. The real issue was that I was depressed.
I had big plans for my life coming out of college and when none of them became a reality, I became depressed.
Spending money allowed me to pretend I had it all together. It wasn’t until I got to know myself by looking within that I realized I was depressed.
I got help, grew my money skills and was able to kick my debt to the curb.
Now it’s time for you to get to know yourself. What issues are hiding behind your spending problems? Are you depressed? Are you in a bad relationship? A job you hate?
The sooner you take action and get to the root issue, the sooner you can grow your money skills and change your financial life.
The second part of getting to know yourself is all about what you value. What makes you happy and brings you joy?
Mastering this money skill is critical because it will help you to stop wasting your money. Advertisers have big budgets and know how to psychologically get us emotionally connected to things.
We buy without thinking. Then when we do think about it, we regret the purchase. But by then it’s too late.
When you know what you value, you can beat them at this game. Instead of blindly buying things, you will be able to know when an item adds value to your life or not.
For example, I used to buy the newest electronic gear the moment it came out. But when I took the time to understand my values, I realized I didn’t value this stuff.
Because of this, it was easy to stop spending money on it. I was also able to identify a few other things that didn’t add value to my life and cut these out as well. And this instantly improved my cash flow.
It might sound like this is hard reading it, but in reality, it isn’t. All you need to do is take some time and put a little effort into improving your money skills and you’ll see results.
#2. Pay Yourself First
The next step in getting your finances in order and improving your practical money skills is to pay yourself first. If you want your finances to change for the better, you need to start saving money.
If you don’t save anything, you will never get ahead. It is that simple.
Don’t do what you are probably doing now, which is to save what is left over at the end of the month. Start saving the moment you get paid.
There are easy ways to do this:
Invest in your 401k plan
The money comes out of your check first so you save money for your future and you save money on income taxes.
Split your paycheck
You can see if your employer will split your paycheck and direct deposit an amount to your savings account.
Set up auto transfers
If your employer can’t split your check, set up an automatic transfer yourself. Log on to your bank account and create a recurring transfer for a certain amount each time you are paid.
How much should you save? As much as possible. Right now, think about your money and decide how much you can afford to save.
Take this number and add $10 to it. Now go and start paying yourself first.
For now, even if think you can save $5 or $10, it is better than nothing. In the coming weeks, you will see your savings balance grow and this will allow momentum to take over.
You will be excited to save money and will want to start saving more.
So why do I suggest you add $10 to the amount you think you can save? The reason is that we underestimate how much we think we can save.
Adding an extra $10 won’t break your budget, but it will help to spur momentum to keep you going.
#3. Set Your Goals
What’s the reason you want to change your finances? What do you want to do with the money?
When I first started on my journey to improve my finances, my goal was to get out of credit card debt. Once I achieved that goal, my next goal was to find a job I loved since I was working one that I hated.
Then I started looking longer term and my current goal is to retire at 55 so I can spend the most time with my daughters.
You need to sit down and figure out what your goals are. Here is my process for setting goals:
Take time to think
I spend some time thinking about what I want out of life and then write these down so I remember everything.
Take a break
I take a break and play with my daughters, exercise, read, etc. I don’t want to think about goals, I want to enjoy life.
Think some more
I take a little more time to think about any other things I might want out of life.
Take a longer break
Now I forget about everything for a few days so I can truly clear my mind.
Review my list
I come back to my list and see what resonates with me. I know when I find it because when I read it, I get excited.
The final step in the process is to define the goals as much as possible. The more specific you are, the more likely you will push ahead to achieve them.
For example, if my goal was to simply retire at 55, that wouldn’t work. In the short term, this would excite me and I would do the things to help me get there.
But over the course of weeks and months, I am going to lose interest. The reason is that the goal is too vague.
I can’t “see” my goal.
But if I get specific with it and talk about spending time with my daughters, spending time woodworking and other things, I can see my goal and it keeps me excited.
The final part of achieving goals is awareness.
You need to keep your goal at the front of your mind at all times. Therefore, you can’t just keep the idea in your head or on a piece of paper in your desk drawer. You need to see it.
I have a note on my desk so I see my goal every day. There’s a picture on the lock screen of my phone that reminds me of my goal.
I also send myself emails. I use FutureMe and write a note to myself talking about my goal and what excites me about it.
Then I send it to myself at random times in the future to help keep me motivated.
Taking Action To Improve Your Money Skills And Your Finances
You now understand who you are, you are saving a little money and you have goals set. Now it’s time to start taking action so you can begin to see results.
Where you are in your journey will determine where you start with the items below.
#4. Pay Off Debt
If you are in debt, you need to pay it off. The reason is simple. You can’t build wealth when you’re giving your money to someone else.
My favorite method is the snowball method since it helps you to build and keep momentum during your journey.
Simply take your debt, order it from the smallest balance to the largest, and pay the minimum on everything but the smallest debt.
Put as much money as you can towards this debt until it is paid off. Then repeat the process for the next smallest debt.
If you follow this plan correctly, you will be making larger payments over time, wiping out your debt faster.
#5. Start Investing
Once your debt is eliminated, you need to start growing your wealth. While a bank savings account is great for emergencies and other short term savings, all money skills masters know that you need to invest your money in the stock market if you want to grow your wealth for the long term.
This is because the stock market offers you a higher rate of return. Yes, there’s a chance that you will lose money in the stock market, but the general trend of the market is higher.
In fact, since 1928, the market has had a positive return 66 years out of 90. That’s a 73% chance you’ll make money.
But to be successful long term, you have to follow some basic steps.
- Create a plan. You need to have a plan for what you are investing in, why you are investing and for how long. Outlining your investments is the most important part of becoming a successful investor.
- Stick with it. Over the short term, the market will be choppy. You have to stick with it in times of trouble. Don’t buy and sell in and out of investments. Pick your investments and stick with them for the long term.
- Control your emotions. Learn to tune out the noise of investing. You are going to hear people scared to invest and overly confident people. Stick with it and refer to your plan.
At the end of the day, to be a successful investor, the old fable of the tortoise and the hare comes to mind.
Be the tortoise.
Pick some high-quality exchange traded funds (ETFs) and invest money into them every single month, regardless of what the market is doing.
You will grow your wealth. There will be times when you do lose money, but if you stick with it long term, you’ll see positive results.
#6. Grow Your Career
The final step in the process is to grow your money earning skills. This can be done by getting promotions at your current employer, switching employers or making a career change, or even going back to school for more education.
The point is you need to work at your career so you can earn the most money possible. At the end of the day, you are your greatest asset. No matter what investment you pick, nothing is going to generate wealth like your career.
To grow my money earning skills, I went back to school to get more education. I also learned how to become valuable at work. This helped me to earn 5% raises on a regular basis. And some years I earned more.
By putting forth the effort to grow your career, you will grow your income.
Of course, there’s a fine line to this. You don’t want to sacrifice your happiness for your career. So don’t take me saying you need to grow your career as meaning you need to work 80 hours a week and never see your friends or family.
You have to grow your career in a way that works for your life, health, and happiness.
One other point to growing your career is to look outside your job to find other opportunities to earn money.
There are countless ways to earn extra money on the side, and if you pick things you enjoy doing, it won’t feel like work at all.
In fact, this was a key factor in helping me to get where I am today. I was doing random things on the side, like selling things online and starting my own website.
Any money I made was invested and never budgeted for. In time, this money began to have a major impact on my finances.
I was investing $10,000 a year, which was in addition to what I was saving from my regular job.
If you need some help thinking of ideas to make money on the side, you can read this guide I put together.
Bringing It All Together
You now have your blueprint for improving your money skills and your finances. All that’s left for you to do is to start putting it into action.
At this time, I want to both encourage and caution you.
I want to encourage you again by telling you that your dream is possible. You can change your finances for the better. I see my life today and never imagined it would be this great.
Not only am I my own boss so I can be flexible with my hours, I get up early and get work done so that when my daughters wake up, I can play with them for a couple of hours.
Then I am finished working when they get home so I can be there until bedtime. I am so thankful for the time I get to spend with them because I will never get it back.
But I do want to caution you. Developing your money skills is a process. Changing your finances won’t happen overnight. It will take time. For most of you reading this, it will take years.
This isn’t to discourage you, but to keep things in perspective. By knowing this going in, you won’t get frustrated when your finances haven’t dramatically changed in 2 weeks.
But everything you do to improve your finances will have an impact down the road.
I still remember when I started investing $20 each paycheck into my 401k plan. I was questioning if it was even worth it. But by the end of the year, I had close to $1,000. Then the next year I had even more. Enjoying the journey was the key in helping me to push through.
And you never know what will happen in the future and how doing the work to improve your finances will pay off.
Five years ago, I was working on the path to retiring at 55. I was working at a high net worth planning firm, getting ready to be married.
Then my boss called me into his office and told me he was letting me go. My jaw hit the floor.
At the time, I had my website which I was running on the side. I made the decision to try to turn my income from it into a full-time income.
I’ve never looked back. The point here is that everything I did leading up to that moment allowed me to take advantage of the opportunity.
By paying off my debt, building an emergency fund and investing my money, I was able to be in a place financially where the risk wasn’t a great risk at all.
Some say I got lucky. But to me, luck is all about preparation. If you do the work to get yourself into position, when opportunity knocks, you can answer.
I am certain opportunities knocked on my door when I was in debt. But I was not in a position to answer the door.
So even though the journey is long, the road and the destination are worth it. You just have to be willing to take the first step and start the journey.
Jon helps people get out of debt and build wealth so they can achieve their dreams on his website, Money Smart Guides. He also has a book, 7 Investing Steps That Will Make You Wealthy, that helps people be successful investors.