Last Monday, I shared with you the first step towards getting financially literate is setting authentic goals. Today, we’re going to focus on getting disciplined and putting you back in control of your finances. Too often we relinquish our decision-making power to others or to our emotions. Sometimes this happens without us even realizing it.
Goals play a significant role in keeping you on track because now you know what you’re working towards, which can help guide your money decisions. However, goals alone are not enough. Being disciplined works hand-in-hand with your goals to help you achieve the life you want for yourself and your family.
We don’t intend to give our financial control away, but we still do. Sometimes we get caught up in playing “keep up” with our friends and co-workers or we let our emotions take control by telling ourselves “we deserve it” and spend mindlessly. Now it’s time to ditch those old habits and beliefs and stay true to what we want.
Credit cards are not bad, but they are easily abused. Many people treat them as lifestyle extenders, which is a fancy way to say they can be debt creators when you lack discipline. Credit cards are a tool and when used properly, they can be a great asset. They can help you track spending and earn valuable reward points as long as you remain in control of your usage by following a budget and paying your bill in full every month.
It’s time to eliminate your credit card debt if you truly want to be in control of your finances. Review your debt and see what your triggers are. And be specific—not just living beyond on your means. How are you living beyond your means? Were you spending mindlessly? Buying things to make yourself feel better? Trying to keep up? Once you understand your triggers and your spending habits, you are better prepared to respond differently when those situations arise, rather than spend money you don’t have.
Many people lack an adequate cash reserve. We live paycheck-to-paycheck, so we are unprepared when emergencies (or opportunities!) arise, so we wind up using our credit card to cover those expenses. We do this again and again. Life happens; I get it. The best way to handle life’s curve balls is to be prepared. Now you can remain in control and make decisions without sacrificing your goals. Ideally, a cash reserve should cover 6 to 12 months of expenses.
A common mistake is sacrificing your cash reserve to speed up your credit card repayment efforts. Instead, you should actually be building your cash reserve while you eliminate your credit card debt. Sound impossible? It’s not. However, it does take work and discipline.
It’s not always easy to see money sitting in a savings account earning pennies when you are paying interest on your debt. Remember your cash reserve or emergency fund has a valuable and specific purpose: to help you pay for emergencies without creating new debt. I have seen people work so hard to reduce their debt, then give-up after an emergency forced them to use their credit card, wiping out all their hard work. Don’t let that happen to you. Create a reasonable cash reserve for your personal situation, taking into consideration your debt and job security, that will give you peace of mind and cover emergencies as they arise.
We have many reasons why we wait to save money, including the popular, “I don’t make enough money and cannot save” excuse. Or we assume someone else is going to save for us, (maybe an inheritance or Social Security). The question we need to ask ourselves is—do we want to depend on someone else for our financial future?
I’ve never had anyone tell me they regretted starting to save or invest their money. So why aren’t we saving more? We prioritize instant gratification over our future because we think short-term instead of long-term. Don’t make that mistake. It’s easy to get started, and one of the greatest gifts you can give yourself. You took the time to create those goals, now you need to save and invest appropriately to make them a reality. They will not just happen because you set them. Reviews your goals regularly to make sure you are on track.
Insurance is topic that many people dread. We don’t always like facing our own mortality. I want a long life with my family but also want the peace of mind that my family will still be okay if the unthinkable happens. This is why insurance is so important.
Life Insurance: We often select an arbitrary number that feels comfortable in a life insurance policy offered as part of our employee benefits plan, which is generally not portable should we leave our employer. Death makes us uncomfortable, so we avoid the hard discussions of what would actually happen if we die or our spouse dies prematurely. You cannot pick a random number. You must determine what amount of protection is needed to cover lost income and to continue living the life you planned.
Disability Insurance: Just over 1 in 4 of today’s 20 year-olds will become disabled before they retire according to the Social Security Administration. Disability, whether short-term or permanent, is expensive and rarely planned for. The lives we lead and the dreams we have for our future depend on the money we earn and save from working. Even a short-term disability can seriously derail your ability to reach your goals. Make sure protect your goals with adequate disability insurance.
A lot of people financially live in neutral and sometimes even in reverse. Financially literate people are firmly in control of their finances and moving full speed towards their goals. What are you doing to take control of your finances?
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