A friend texted me this morning.
“We should talk soon. Julie is coming around to the idea of us managing our own money.”
It seems easy, right? My initial reaction to my friend was, “That’s awesome!” because it is. There are few things more satisfying than achieving your financial dreams and knowing that you climbed the money management mountain yourself.
No “money-god” came down and did it for you.
You didn’t need the Powerball numbers.
You actually plotted a financial course and landed safely at your destination.
For my friend, and for you if you’re about to embark on this journey, there’s good news and bad news: the good news is that it isn’t difficult to manage your own money.
The bad news is that to effectively manage your own money you’ll need to be ready to face some fairly difficult tasks.
Two Types of People
When I was a professional advisor, I’d meet some smart people who wanted to jump into their own money management and wanted an expert with an opinion to look over their shoulder, hold them accountable, and make sure they didn’t miss any “I” dotting or “T” crossing.
…and then there were other, often equally-smart people who wanted to hand it over to me and have someone else take care of it for them.
Believe it or not, most advisors I knew preferred the latter type of client and loathed the first one. Someone questioning their motives? Someone asking “why are we doing it this way?” all the time? That’s preposterous!
But if you’re going to ever learn how to manage your own money, you’ll need to be the first type, not the latter.
The steps aren’t difficult:
The Steps to Managing Your Own Money
My kids are reading myths in school. In the story of Hercules, he faces a series of challenges to achieve is goal.
You’ll have a series of gauntlets in your way too, if you want to manage your own money.
1) Write out your goals. I’m not talking about writing:
Fall Deeper in Love
Real goal writing has a specific time, dollar amount and vision attached.
I want to be able to live on $65,000 per year (in today’s dollars) by age 65 without having to work every day. With this money I’d like to: (here you write your bucket list, which should include visiting every NASCAR track in the country).
That’s a goal you can shoot for and be excited about (except for visiting the track at Pocono, which I thought was pretty overrated).
2) Next, you write out all the hurdles in your way.
– I have $25,000 in credit card debt (separate by interest rate, term, amount)
– I have to put two children through college
– I know nothing about money management
3) Then, you find one of the nearly bazillion financial calculators online (you can use our powerful little PlanWise calculator here on the site!) and figure out how much you need to save to reach your goal.
– I need to save $250 per month to reach my dream if I achieve an 8% return.
Armed with your money management return information, now you figure out how to come up with $250 per month.
– Tweak your budget
– Pay down debt
– Take on more work
4) Before investing, though, you have a big problem. You have to insure yourself against some of the huge “what if’s” out there for you and your family:
What if you die?
What if you are disabled?
What if you have a car accident?
You’ll need to create a will and evaluate insurances.
5) Finally, you begin the heavy task of research to find investments that have historically achieved 8%.
No Step is Difficult, You Just Shouldn’t Miss One
As you can see, when you take on the hard task and decide to manage your own money, getting it right will be difficult. Each area demands time and energy:
– Planning, milestones and tracking
– Budget, income advancement and debt reduction
– Insurance need projection and comparison analysis
– Estate planning
– Investment allocation, picking and monitoring
These are five basic money management steps, but each packs a punch!
I Don’t Mean To Imply You Can’t Do It
As soon as I finish this piece I’m calling my buddy and talking him through these points. Before he takes on the task, he should know how long the financial security road really is. Going in with your eyes wide open is half the battle if you plan to win the “manage your own money” game.
He can do it, and so can you!
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