get your finances in order

Empower Yourself Step 4: Get your finances in order. Pay off debt. Save. Invest.

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Once we become adults and start working, I think we get so involved in our everyday lives, and excited to start living with an actual income, that the responsibility we have to ourselves and our financial houses fades a little to the background.  We think that we have time to save, time to pay off student loans and other debt, and time for retirement. However, we need to bring this responsibility back to the forefront and get our finances in order.

(In case you missed it: Step 1, Step 2 and Step 3 !)

What does getting finances in order entail? The following:

  • Managing and paying off debt
  • Creating budgets and tracking spending
  • Saving for a rainy day
  • Putting money into retirement
  • Putting money into investments

This post is meant to be a starting point to give you some guidance on what to do, questions to ask and some advice on how to get all of this in order and keep it that way.

Let’s get started.

Pay off Debt

Many people overlook the importance of paying off debt because it’s something that gets auto-debited from our bank accounts and we just don’t think about it. However, debt is something that can weigh you down, prevent you from really moving forward, and can stifle your ability to save and invest. I’ve heard a few arguments regarding paying off debt and want to address them with some thoughts; see if you agree or disagree.

1 – “I can make my money work for me in the stock market with higher returns” (especially with low interest rate debt)

While this is true, it only works in the long term. In the short term, your debt is still accruing interest, and by the time you pay it off you’ve paid back much more than the original principle amount. Imagine the investment power you’d have if you took that extra money and stuck that in the market instead!

In addition, when you’re trying to save for a big purchase, you will always be viewed in regard to your level of debt and debt to income ratio. That’s the only objective measure that lenders have to evaluate whether or not you’ll be able to handle a loan (or another loan).

Of course with high-interest rate loans, you should always prioritize and pay them off. There is no benefit to letting that ride.

2 – “I don’t want to stifle my life or standard of living by making all these extra payments”

Life is short and you should definitely live life to the fullest and take opportunities while you can. Prioritizing debt repayment doesn’t necessarily mean its an all or nothing decision. Everyone’s income levels are different, so the ability to do this can vary greatly. I just advocate for this: if you can make extra payments, do it. It could be every month, it could be twice a year, so long as you are actively working at chipping away at that debt you’ll become debt-free sooner. Which translates to more cash to play with, invest with and live life with.

Imagine what you can do without debt

As a result of your financial debt freedom, you’ll have

  1. More disposable income to invest into the market and let your money make money for you.
  2. You’ll have disposable funds to save for buying a house (if you haven’t already bought one), or other large, life purchases.
  3. There will be extra money for your travel budget and to experience things you may not have been able to before.
That’s just the tip of the iceberg.

I’m not saying you can’t do these things even with loan payments; however, your ability to pursue these other interests increases exponentially when you are debt-free. You are less likely to hold yourself back.

Speaking from my own experience, I was able to pay off my student loans after a year of starting my job. I initially had all these plans afterward to save up for a condo, and/or a new fancy car. However as time went on and I watched my savings grow, I realized I didn’t really care to take on debt again. (That being said, I did finally decide to invest in and purchase a home – the timing and the home were right).

Having no other debt makes me feel very in control of my life. I’ve been able to invest more and play with the stock market.

That is incredibly empowering.

Create a Budget and Keep Track of Your Spending.

You know your level of debt now let’s see the funds coming in and where else you spend them. There are plenty of apps (a popular one is Mint) to help you keep track of your spending. There’s also a simple way to get started: look at your credit card and bank statements.

Print out statements for the last three months and go through and highlight your spendings. See where your money is going: food? entertainment? shopping? auto payments?

How many of us have automatic payments set up for something that we forgot we signed up for? Time to get rid of them!

In addition, use this opportunity to see if there are any areas where you can cut down payments. For instance, how much are you paying for cable and internet? Can you call your provider and see if there’s a deal? Are there other providers in your area that have sign on deals? You can save a lot per month by doing this.

If you’re interested in financial apps to use, check out this list:

8 Best Finance Apps

I’ve used Mint in the past. The way it works is you link your credit cards, and create budgets for yourself in different categories.  For instance, under groceries, you can enter in a budget of $200 per month.  Then at the end of the month Mint will let you know how your spending ranked in comparison to your budgets.  It also will send you a notification if you end up overspending.

Save for a Rainy Day

A good rule of thumb is to have 6 months’ worth of expenses saved up as an emergency fund. If 6 months worth isn’t possible, or difficult for you to attain, just be aware that you should have something set aside that you don’t touch unless it’s an emergency.

Retirement

Please save for your future. Call your job and see what your options are through work. If there’s employer matching you should definitely take part in it (they are giving you free money!), and any pre-tax account should be utilized to help you decrease your tax burden.

In addition, you can put away for retirement through traditional and Roth IRA’s, depending on your income levels. (For high-income earner’s, you can still take part and take advantage of a backdoor Roth IRA)

Putting it All Together

So my advice, no matter what your status, is to take a hard look at your finances. Make sure you have a plan to pay your debts, save, put away for a rainy day/emergency fund, invest, and put away for retirement.

If you have a plan, you’re more likely to stick to it, and more likely to take those steps needed to ensure you’re in a strong place financially.

How can you get started? Educate yourself

It’s easy for me to tell you want to do, difficult to get started if you don’t know where to begin. If you don’t know where to begin with tackling your personal finance hurdle, don’t worry. You definitely are NOT alone.

The first thing I’d do is just read.  Read books, read blogs, or read finance magazines and articles online.  As the intelligent, educated professional you already are, I can promise that becoming financially literate is not difficult.  Boring? Occasionally, Yes.  So make sure you brew some coffee.

The one thing I don’t recommend is hiring a financial advisor. From what I’ve seen, all they manage to do is convince you to make decisions that sound good, but underneath it all, only benefits them.

The B3 Starter Pack

I’ve compiled a basic list of what to consider and where you can put your money in regards to investing, and retirement. Check it out and see if it helps kickstart your financial journey!

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Everyone’s finance and investment journey is different;  any tips and tricks that you have learned along the way? Comment below!

(Featured and pinnable images courtesy of Unsplash)

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18 thoughts on “Empower Yourself Step 4: Get your finances in order. Pay off debt. Save. Invest.”

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  17. Thank you so much for the mention. I’m glad you are finding use out of that newsfeed I created (it helps me keep track of everyone).

    I totally mismanaged debt and did everything I could to make future self pay for my sins. Unfortunately I became future self soon enough and had dug a big whole.

    Finally paid off my student loans 17 yrs agree graduation (I know awful) because I deferred and did forbearance as much as I could. Once that debt was off my back I got excited about attacking the remaining debt and became debt free shortly after paying off my mortgage.

    You are right once money is not going out to pay interest to lenders you have the ability to put it to work by investing which is what I did. As physicians we are lucky that our income is large enough that when we decide to attack debt it can rapidly dissappear

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