Do you feel “empowered” when it comes to money?
Most people don’t.
Being financially empowered means feeling secure about your finances and your future.
It means knowing where you are at financially, and more importantly, where you are going.
Financial empowerment goes hand-in-hand with financial literacy. You can’t have one without the other.
But being financially empowered goes above and beyond financial literacy. It means you know how financial literacy applies to your life and your situation.
If you want to be financially empowered, considering doing some or all of these things.
1) Track Your Income And Expenses
If you don’t track your income and expenses it’s difficult to know whether or not you are making the right decisions when it comes to your money. In fact, when you first start tracking your spending you may be surprised at just how much you spend on certain things (I spent how much on groceries?!?).
There is no perfect way to track your income and expenses, primarily because most people have multiple accounts that money passes through. With that being said, there are a few tools out there that can help.
Janet Kim has a great budget spreadsheet on Savvy Spreadsheets that helps you budget and track your actual spend at the same time. The best part of her spreadsheet is the tab that compares budgeted spend and actual spend.
I personally set up my own spreadsheet and have it customized to my preferences. But for most having a tool like Janet’s will be much easier than trying to build something from scratch.
2) Understand Your Debt
Most people have some sort of debt. Student loan debt alone has surpassed $1.3 trillion.
If you have debt you need to know a few things including:
- What type of debt do you have?
- How much debt do you have?
- What interest rate is your debt?
The tool I use to track my debt (as well as my assets) is Personal Capital. I only started using Personal Capital recently, but I love how you can quickly and easily get a snapshot of all your accounts as well as things that may not sit in an account, such as your home value.
I would encourage people to take it a step further and understand the interest rates on your debt as well. Not all debt is equal. For example I have two auto loans that are at a 2% interest rate. There is no way I am going to pay down that debt before, say, a student loan with 10% interest.
3) Save And Invest Regularly – And Automatically
Do you know how much you are saving and investing each month? For some the answer will be “nothing.”
If you do not currently save or invest I encourage you to start, even if it’s a small amount each month. It’s pretty incredible what an impact even $100 or $200 a month can have over time.
Plus everyone says life goes by too quickly, right? If that’s true than you will have a decent nest egg built up in no time.
Of course it’s not always that easy, which is why I recommend slowly saving and investing over time. You don’t have to go from contributing 0% to a 401k to 25% overnight. You can start by just contributing a small percentage of your income.
The nice thing about investing is that it’s typically easy to set up automatic deposits into your employer’s 401k. Self-employed? Set up automatic monthly deposits from your checking to your investment account at your broker. Don’t have a broker? Sign up for one at TradeKing. Today.
I also recommend people set up automatic contributions from their checking to a savings account. It’s not easy to build an emergency fund, but it’s so worth it once you do.
4) Prioritize Learning About Money And Finance
The fact that you are reading this blog – and have made it this far in the post – shows me that you clearly prioritize learning about money and finance. If you don’t already I would encourage you to set aside 30 minutes (or more) a week to learn about money and finances.
There is a ton of content on Young Adult Money about making money, saving money, and personal finance in general.
Besides reading a blog like ours I would also encourage you to read personal finance books and dig into topics that are relevant to you. If you’re buying a home soon, google and read up on all aspects of buying a home. If you are having a baby soon, read as much as you can about preparing for that change financially.
The more you learn the more financially literate you will be, and the more in control of your finances you will feel. And that’s what being financially empowered is all about.
5) Understand Where You Are Going
So we’ve talked a lot about understanding your financial situation through tracking your income and expenses, analyzing your debt, and saving and investing, but what about your future?
To truly feel empowered you have to feel good about where you are going, and typically that means having a plan. For example, if you want to cut expenses you should have a plan for doing so. That may mean couponing, meal planning, going out less or being more strategic about how much you spend when you go out, or cancelling cable.
The biggest issue most millennials deal with is not having enough money. Sure it would be great to pay off debt, save, invest, and buy a house, but sometimes there simply isn’t enough income to do it all. So what’s your plan? Will you try to increase your pay at your day job? Will you start a side hustle? Being proactive about increasing your income is one of the best things you can do to empower yourself.
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If your goal is financial empowerment, having an understanding of money and finance in general as well as your specific financial situation is essential. Once you build that base, knowing where you are going is just as important.
Being financially empowered will make you feel more confident, more secure, and ultimately will make you a happier person.
Do you feel financially empowered? If so, how did you get to that point? If not, what specific actions will you take to become financially empowered?
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I totally agree with your statements.
I believe that financial literacy is a key to financial empowerment.
I like #4 and #5. You don’t become a doctor just by doing you. You study medicine to become a doctor. You don’t build an aircraft right away. You study how to build an aircraft and study engineering or some sort. The same thing goes with financial literacy. The more you read, the more knowledge you get and the better chances you will make good financial decisions.
I like #5 because it simply speaks about goal. I have always been a firm believer of setting goals. Without it, you would only travel on a long and winding road without a foreseeable end.
What’s helped me feel empowered is finally tracking my net worth. I like being able to see the big financial picture and how my spending and investing habits affect that.
Excellent points DC. I think so much of feeling empowered financially is understanding how/where your money is going and where you want to go in life. Like you mentioned, money is a tool. That tool can be used to do a lot of different things, but you need to learn about how it works and what it can do for you. Once you do that and pair it with goals you can begin to get some traction.
Great suggestions and it makes sense that you start with ‘Track Your Income and Expenses.’ After all, until you have a detailed accounting of what is coming in and where it goes once it goes out, you can’t begin to realign your expenditures with your goals. Good stuff!
practicalsaver Exactly! You can gain a ton of knowledge about money, finances, small business, etc. but never do anything with it. It’s important to apply it to your life and your situation.
Aliyyah I had the same experience, but it was tracking my income and expenses that had a huge impact on my life. It can be eye-opening and it’s the only way to truly know how you are doing financially.
FrugalRules Exactly! The people who succeed in reaching their goals typically are the ones who have spent the time to learn and understand how tools – like money – can help them achieve their goals.
James @RetirementSavvy When I started tracking my income and expenses about three years ago it had a big impact on my life. There are many people who do not do it for various reasons, but once you start doing it and get in the habit of doing it you are going to reap the benefits of full knowledge/understanding of where your money is going.
Tracking my income and my debts has helped me get a grip over the years. Without knowing what I have or what I had to pay I would never have been able to get ahead.
Creating & sticking to a budget can be daunting. When I had my student loans, I paid off the one with the highest interest rate first (as you mentioned). As much as I love my bank, I like my money being deposited so I can withdraw later.
Really nice points DC. I like how you start off with a budget and end in evaluating where you want to go. I think one of the most important points you made was constantly investing. The best way to invest in your 401k is to have it automatically deducted from your salary that way you never see the money. It was also important how you said don’t go from 0%-25% as that can be unrealistic for many people. Small steps will make huge differences in the future.
I’ve always considered myself to have a good understanding of finances. I’ve been fortunate to not ever been in situations where I was living paycheck to paycheck or drowning in debt. However, I still read these financial blogs such as yours because there are always ways to improve. One weakness I have is figuring out how to put my money to work. My savings spent years sitting in a bank account. Even for those who feel financially empowered, there are always weakness to work on!
Man good to have you back at the keyboard ;), it’s been a while, unless I’ve missed an article haha.
First of all this is a power packed one, love that you’re asking these great financial literacy questions.
I would say that yes I do feel on the path to financial empowerment however it’s going to be a lifelong journey rather than a destination, pardon the cliche :).
For me It’s got to do with learning, reading and getting your hands dirty. I could get more specific on this however in the interests of time will leave it there.
Keep up the great fight man!
I think the older I get, the wiser I get haha. Even though one of my degrees is in business, it would have been helpful to have taken some classes on money management and learning what the picture is (mortgage, saving, retirement, etc.) I was pretty clueless! I don’t think you can ever be educated enough about taking care of your future.
Thank you for sharing these great tips! I can honestly say that these days I feel financially empowered. I paid off my debt in 2014 and having saved some money, invested in real estate. I save money every month and keep track of my net worth. I definitely know what my financial goals are and try to do my best my reach them. However, back in 2013 and before I started my own blog, I had no idea what I was doing with my money… I believe anyone can learn how to handle their finances and be financially empowered!
Jason @ The Butler Journal Same here, Jason! I actually am updating my spreadsheet with March financials right after commenting on blogs today. It’s a great use of my time because I know it’s helping me keep tabs on where I’m at financially.
MoneyBuffalo I think more people need to keep tabs on interest rates. Great to hear that you focused on the high interest debt first!
The Millennial Budget Thanks for the kind words! I agree that small steps are the way to go. Unless your income is somehow increasing 25% overnight, it makes no sense to go from 0% to 25% overnight as well. Small shifts can make a huge difference over time.
George @ Properly Excellent point, George! There is always room for improvement. I think even millionaires would agree with this. There is always more to learn and do when it comes to managing your money effectively.
mycareercrusade You’re right Jef, I haven’t written as much lately. I’ve been busy promoting the book and gearing up for a redesign to go live in a week : 0 Appreciate all the kind words and the support!
believeinabudget Honestly it’s really odd that a core college curriculum includes things like Geology (or another science class) and things like art history, but not a personal finance course. Imagine if every college student had to take a course in it? We’d be living in a different world!
Eva @ Girl Counting Pennies That’s a pretty incredible transformation in just three years! Kudos to you for prioritizing financial literacy and financial empowerment. Inspiring!
Great article! I would add one thing: Know how your taxes are going to be affected by your investments, and know what to provide your CPA in regards to your investment accounts.
We recently got hit for a good chunk of back taxes on our 2014 investments.
Oh well, live and learn. It’s not going to bankrupt us. :-)
Thanks for the great stuff!!