Sometimes, it’s really hard to take the next step. Sometimes, you may feel stuck. Sometimes, you may feel too busy to deal with it or like you don’t really have the bandwidth.
Especially with our finances, it can be really easy to remain stuck. The rush of life as it hums by can keep our finances on the back burner.
Even though making the next move with your money may feel hard, it may help if you have a more complete view of the entire picture.
I’ve been working on a framework that would guide someone completely new to money management all the way to money mastery.
And it’s based off of the most important part of the money equation: income-expenses=margin. I’ve talked a lot recently about margin, the part that you have left over after your expenses and how it’s to most important part of your money.
Without it, you aren’t able to make progress with your money goals. Without it, you don’t feel like you have any security or breathing room.
There are four pieces when it comes to finding margin. You’ll have to spend time with each piece, learning and setting yourself up for success. And without all four pieces, your financial picture won’t be complete.
The four pieces are Knowing Your Numbers, Deciding, Creating Margin, and Saving Margin.
Knowing Your Numbers
With Knowing Your Numbers, it’s all about getting a complete picture of your finances. If you don’t have a handle on how much you really owe, then it’s impossible to come up with a plan where you find yourself completely debt free.
If you don’t have any idea how much you and your spouse bring home each month, that’s also going to mean that you have no sort of basis for coming up with a budget to stay within your spending each month.
Then, if you’ve been working for a while, you may have retirement accounts scattered between old jobs. You’ll want to gather all of those accounts together so that you know how much you’ve saved.
Knowing your numbers means that you’ve gathered all of your financial resources and you know where you stand.
Deciding
Deciding means that you intentionally make decisions about what you want your money to do. If you’re so squeezed by debt that you don’t feel like you have a choice, it’s time to take that power back.
The truth is, you do get to decide how you’ll spend your money and how you’ll live your life. And setting the priorities for how you’ll spend your money may be different from your friends and family.
When you decide, you need to make the decision about what your money needs to do first.
It may be prioritizing travel that you and your partner have been dreaming about.
It may be deciding that nothing is more important than getting completely debt free.
It may be deciding that you want to get on a plan with your money so that you don’t have money fights with your partner anymore.
Do you value travel? Do you value upgrading the house? Do you prioritize personal spending? Or dining out?
My guess is that if you’re reading this, you’ve made a decision about what you want to do with your money first.
You can’t lose sight of your priority. It has power, and it gives you motivation as you learn how to manage your finances.
Creating Margin
This is where you have to carve your margin from the income that you have today. Remember that the money equation is income-expenses=margin. That’s what you have to work with.
No matter how much you make, you could always spend it all. That’s why when you’re in the creating margin step, you’re carving out extra money to be able to use each month. You’re expanding your space from the financial edge.
You first need to create a plan for your money. Budgets can be super detailed, but they can also be very big picture, with not a lot of details worked out at the beginning.
I think having a budget is the only way to be able to keep track of all of the moving parts that you’ll have in your finances from month to month.
If you haven’t started already, creating a budget is your first step in spending within your means and maximizing your margin each month.
But that margin you create each month is where the magic happens. The margin you create each month is how you reach your financial goals. It’s how you pay off your debt the fastest. It’s how you prioritize the travel you’re planning. It’s how you have some extra spending money each month.
You do that with you margin you create each month.
Tomorrow isn’t guaranteed. All we have is today. That’s why it’s important to carve out margin so that we can enjoy life today. However, it’s a balance with the fourth piece, saving.
Saving Margin
You’ll need to save to make sure that you are creating margin for your future. All of personal finance is built on creating the situation where you have as much money to spend as you’d like. That means that you have enough to spend today as well as preparing a retirement where you have enough to spend then too.
That means that you should be saving money each month into a retirement account like a Roth IRA or a 401k/403b at your work. These accounts give huge tax advantages and are the way to go when it comes to saving for your retirement.
What many people don’t realize however, is that just putting your money into an account like a Roth IRA isn’t enough. You have to actually invest that money into funds where your money has a chance to grow over your career.
It can seem a little intimidating, but you can actually invest yourself really easily. It’s not too hard to understand and once you know a few key things, it’s really realistic to invest your retirement money yourself.
There’s one other key part in creating margin for your future and that is to make a plan to become totally debt free and to stay that way. Really, the sooner you can get out of debt the better.
Debt by definition is a margin killer. It steals the extra that you have to reach your money goals every single month. It weighs down the possibilities you have and it commits you to paying for things each month that you’ve already bought.
To put yourself in the best possible position with your money, work to get completely out of debt and to stay there.
What pieces do you have in place?
You’ll need all four pieces to master your finances.
Before you move on with your day, I want you to take a quick moment to think about where you are with your finances, especially with it comes to Knowing, Deciding, Creating, and Saving.
Which of these pieces are missing from your financial picture? Which of these pieces do you already have?
I want you to let me know by hitting reply.
I’ll be back as we keep exploring what it means to master each of these four pieces.
See you next time,
Jared
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