Finances are the number one source of stress for 73% of Americans. Many of us are one expensive car repair or unexpected medical bill away from financial ruin. But this does not have to be the case. Financial empowerment is about taking charge of your finances rather than allowing them to dominate you.
Financial empowerment is setting financial goals, developing and implementing a plan to maintain your desired quality of life, and having a plan in place to deal with unanticipated financial obstacles that arise along the way.
Whether you earn entry-level wages or six figures, becoming financially empowered means taking control of your finances. You’ll be able to make better long-term decisions this way. Are you ready to create the life you want without worrying about your next paycheck? Here are 8 financial empowerment ideas to get you started.
Understanding your emotional relationship with money and how it influences your financial decisions is a vital step toward financial empowerment. People frequently have complex emotions about money and justify their way into actions that may not be in their best interests. Our attitudes toward personal finance are heavily shaped by our childhoods, and part of becoming financially empowered is realizing how those attitudes affect our finances today.
Financial empowerment is about attitude as much as it is about money. Planning, strategizing, and matching your spending and savings to your long-term goals all contribute to a logical, calculated attitude to money.
For example, you may desire to establish a business, but your anxiety may lead you to believe that you will never be able to afford to quit your work and pursue your ambition. Financial empowerment allows you to overcome that fear, make a plan, and say, “I can’t afford to quit my job today, but if I put $500 into savings each month and boost my credit score by 100 points to qualify for a loan, I can transition out of my work and start my business nine months from now.”
Our parents have taught us a lot about money. As illustrated in works such as Rich Dad, Poor Dad, financially successful people pass on their knowledge to their children. Many schools do not teach personal finance and those that do tend to cover simply the fundamentals.
Fortunately, there are numerous free tools available to help you gain a good foundation in financial principles—you’ve already discovered one of them! It’s never too late to learn how to handle your money, whether you prefer podcasts, videos, books or blogs, or even interpretive dance.
You must first decide where you want to go before you can figure out how to get there. That doesn’t mean you can’t alter your mind or stick to a strict plan, but if you don’t know where you’re going, you can end up driving in circles.
Someone may desire to create a business, but another may want to start a family. One person may want to travel extensively right now, while another wishes to retire early. Your goals are determined by what is essential to you; it is only important that you have them. When it comes to setting financial goals, many people find the SMART goal structure useful. SMART goals are those that meet the following requirements:
Setting smaller, shorter-term goals, in addition to big, long-term ones, can assist guide you along the way. They can be long-term goals (such as maximizing your 401k and IRA contributions) or short-term objectives (like deciding to pay off a credit card by a set deadline.)
Many people struggle with money management and credit maintenance before committing to learning and doing better, and that’s perfectly fine! It is never too late to seek financial empowerment, nor is it ever too late to correct past mistakes.
If your credit history reflects prior mistakes or struggles, or if you’ve never created a great credit history, you can improve it. Many of the activities that financially empowered people do to manage their money also help to build or keep a good credit score. To borrow money at low-interest rates, you must have decent to excellent credit.
Your goals are the places you want to travel on your financial journey. You now require a road map to get you where you need to go.
The first step is to create a budget. Financial empowerment comes from how you manage your money, regardless of how much money you make. Understanding what you earn and spend each month allows you to make the best decisions to stay on track with your objectives.
Taking the effort to properly budget will help you identify areas where you can cut back on spending. If you have defined goals, you may calculate how much money you need to save or invest each month to reach them, and then factor that into your budget. Treating your savings/investment amount as a bill and putting it in a separate account when you pay your other payments might assist you in staying on track.
While your plan should contain a monthly budget for saving or investing, making your money work for you is also part of money management. It is critical to strike a balance between easy access to money and return on investment. You may create wealth without putting in any extra effort by taking your money and investing it effectively.
Aside from optimizing your 401K and IRA, it’s a good idea to explore other investing alternatives. The peer-to-peer investment allows you to invest in other people while managing your assets on a scale that works for you. Funding peer-to-peer personal loans, for example, has low minimum investment and historically high returns, making it a good method to diversify your investment portfolio.
A detour can derail even the best-laid plans. An unexpected medical payment or car maintenance can throw you off track. This can be stressful, but you wouldn’t cancel a road trip just because you got stopped in traffic for a while, would you? Planning isn’t only about sticking to a budget; it’s also about being ready for the unexpected.
A financially empowered individual understands that setbacks are unavoidable. They’ve planned and thought through their alternatives, so they already know what resources are available to them in the event of an emergency. Instead of a high-interest credit card, individuals may choose a personal loan or, if they are a homeowner, a home equity line of credit. Either choice has cheaper interest rates than the majority of credit cards.
Even in an emergency, you can make better decisions if you plan ahead of time. That is the benefit of gaining financial independence.
You have goals, a plan, and a new perspective, but you can’t just coast. Regularly monitoring your progress and making adjustments as needed is crucial to your financial success.
It’s a good idea to sit down and examine your budget and plan every few months or whenever your income or expenses change drastically. Track if you’re sticking to your budget, saving and investment goals, and then discover areas where you may cut back. If your income has increased or your expenses have decreased, adjust your savings and investing goals accordingly.
It’s also critical to keep an eye on your credit so that identity theft or errors in your credit report don’t undo all of your hard work. Every year, you are entitled to a free credit report from each of the three credit agencies, and there are also apps that monitor your credit for you, such as Credit Sesame. If you see something on your credit report that you don’t recognize, you can dispute it in writing, and the credit bureau will look into it.
Financial empowerment is reachable no matter what your income is — or how much debt you have — and can help you reduce stress, enhance your standard of life, and achieve your long-term goals. Take control of your finances rather than allowing them to control you. By doing so, you will be one step closer to living your greatest life.