- Author Jean Chatzky shares important steps that anyone can implement to build financial security.
- There are multiple tools that help savers create a budget and track their spending.
- Maintaining a budget and building savings will help people build a better relationship with money.
While each person’s road map to a free and clear financial future looks different, there are some key themes that will benefit anyone on the path towards financial freedom. And one expert, Jean Chatzky, the CEO of HerMoney Media and host of the “HerMoney” podcast, spoke with Insider about some of the bigger picture themes that will help guide people from all financial backgrounds towards the path to success.
The goal, Chatzkzy explains, is to give the latest on budgeting and financial planning to improve our relationships with money over time. It’s changing our behavior and the relationship we have with money and — what it means to our present and future — that can act as the catalyst for setting bigger, concrete goals for financial independence, whether that’s paying off major debts like student loans or medical bills, seeking a future with a higher quality of life, or retiring early.
There are certain money basics that, if followed, will set the foundation — and even guard rails — for building financial stability, Chatzky says, and explains four of the most crucial themes for financial freedom.
There is a reason why a comprehensive budget is the first step in a financial plan.
Getting your finances in order doesn’t have to be a daunting task, Chatzky says, but it is a necessary first step. Planning and setting a budget helps savers track spending, prepare for emergencies, get out of debt, and chart their financial progress. The latter themes are not all necessarily co-dependent, but a comprehensive budget is the crucial building block to preventing any undo setbacks from one’s path towards financial freedom.
The only way to create a budget that works is knowing how you are spending your money and keeping track of what your money is doing for you.
“Knowing where your money is going is the only way to build a realistic financial life,” Chatzky says. “When you create a budget and know where your money is going and if you are funneling the right amount of money into savings, then you actually have more freedom in deciding what to do with the rest,” explains Chatzky.
Tracking a budget can be done with a mobile app like Mint.com while some major banks also offer budget tracking tools through their online banking services.
While making a budget and sticking to it can seem restricting and limiting to some, Chatzky says that this is what sets one up to ultimately have more freedom. Take a moment and sit down with all of your bills and expenses and income, Chatzky adds, and be honest with yourself about how you spend your money, maybe create a spreadsheet with all of your monthly expenses and make a plan to cut out unnecessary spending — the late afternoon coffee run, streaming services, delivery from Doordash or Grubhub — and save a certain amount of money every month.
When setting up a budget, think about what is important first. Major expenses such as housing, groceries, insurance, credit card payments, will likely be the biggest for most people. After that, savers should have a set amount that goes into savings each week or each month that should be as consistent as paying for your housing — even if it’s just a small percent of one’s take-home pay.
There are some apps — such as Acorns, Chime, and Digit — that help savers by rounding up everyday purchases to the next dollar amount and then depositing those small amounts into a separate savings account. Anyone with a salary knows where their money is coming from, but it’s equally important to know where your money is going.
“It’s so easy to pay for everything now and spend money. I make it easy on myself and just check my account online everyday — that way I know what is coming out and there aren’t any surprises,” Chatzky said.
Make getting out of debt a top priority.
Carrying debt month-to-month and year-to-year will make saving money difficult.
“The stress that is caused by debt is the number one thing that makes us unhappy about money,” Chatzky states.
Those with good credit have some options to consolidate debt, whether that’s through credit card balance transfers with promotional intro rates, personal loans, or utilizing a home equity line of credit.
“Paying down debt is more important now due to high interest rates and if interest rates rise again, it just makes being in debt more expensive,” Chatzky says.
Now is the time to really make an effort to pay debt off because saving money is even more of a priority. It might take a while, but with discipline and determination, it will be worth it in the end. And once you are out of debt, you can put that money into savings and keep building solid financial footing for yourself.
There are many ways to pay off debt, but the snowball method starts with paying off the smallest amount of debt first and then applying the amount of the paid off debt to the next debt owed. This process would continue until all of the accounts are paid off. By using this method, you become intentional about paying off your debt and as each bill is paid off it gives you a feeling of control over the debt.
Make sure you get the employer match.
If and when possible, invest in a work-based retirement plan and be sure to vest enough to get the employer match as it’s essentially free money to the employee. According to the Bureau of Labor Statistics, 68% of private industry workers had access to retirement plans in 2021, meaning that the majority of working adults have some sort of retirement benefit through their job. This is one of the best ways to get started with saving and investing.
“The best thing about the 401(k) is that it is automatic and you can set it and forget it,” Chatzky states.
Employer matching can significantly boost your retirement savings over the long term, though anyone with a 401(k) benefit should check their employer’s vesting schedule (the vesting schedule is the years of service required before an employee can keep all of the employer-matched funds).
Having an emergency fund will actually keep you out of debt.
On the way to financial security, it’s important to build a sizable cash emergency fund. An emergency fund is going to protect your financial stability when the unforeseen happens. Make it easy on yourself and set up automatic deductions from your paycheck into a savings account each payday. A good goal is to have enough saved to cover 6 to 9 months worth of expenses in the case of a job loss or other major calamity.
A YouGov survey for the Economic Security Project reported that 49% of Americans would not have $400 to cover an emergency expense.
“An emergency fund is insurance against credit card debt. If the transmission goes out, or the water heater dies or there is an unexpected medical bill, you will be able to use the cash in your emergency fund to cover it instead of using a credit card or getting a high interest loan,” says Chatzy.
This is also why a budget is so important because when you know where you spend your money, you will see where you can cut spending to build up your emergency fund.
Adjusting your money mindset.
Do you experience tension or anxiety around money? Have you taken the time to understand your feelings around money? Chatzky encourages having a healthy mindset towards money, which certainly sounds easier said than done. Money behavior, which is the way in which you handle your money, can be set as early as childhood. It’s our own personal feelings about wealth and the psychology of being in debt versus being financially free that will inform how one handles their money.
“People approach money based on their own biases, experiences and fear and this affects their money management. For example, if you grew up with anxiety around money or feeling like there was never enough money, that could impact the way you handle money today as an adult,” Chatzy told Insider.
It’s often these pre-existing feelings around money that lead many to think that money is in control, when that is not the case. Jean wants people to own their money.
“Owning your money means owning your life, if you feel like you are always behind or in debt then it is hard to feel like you are in control,” says Chatzky. “But if you can make a plan, know where your money is going and have an emergency fund, then that is a much more powerful place to be in terms of your money and your financial stability.”
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