A Personal Finance Roadmap for Beginners 1
An easy 12-step guide to your financial freedom
“Making a budget is scary, scarier than it’s hard. I think if I start putting in those numbers I’ll break into tears. And that’s what I’m trying to avoid, the premium tears.” “Thinking about the future just freaks me out. I’m also trying to avoid filling the savings, retirement, and emergency fund numbers.” “That time is waiting for no one is a great WORRYING factor for me.”
These are some of the financial insecurities my friends have shared with me during the past week.
I wish I had a magic wand that could take all their troubles away. The best I could do is listen. And also respond by writing this article as a guide for them and anyone else who might be experiencing the same fear.
First things first, there is no magic wand. When it comes to figuring out your finances, the only way out is in. You cannot avoid the premium tears.
But if these years have taught me anything it is this: you can never run away. Not ever. The only way out is in. — Junot Diaz, The Brief Wondrous Life of Oscar Wao
With that out of the way, I will attempt to give you a financial roadmap that you can use to help you make and track your progress. This is what I have used and continue to use in my financial freedom journey.
If you want to make progress in your financial freedom journey, there are 12 steps you should follow:
1. Understand the financial rationale that makes you act the way you do
2. Read! and talk about money
3. Get an accountability partner
4. Budget and Spend less than you earn
5. Pay off debt
6. Build an emergency fund
7. Medical Insurance
9. Set up a Pension/retirement fund
10. Set up Life Insurance
11. Write your will
12. Give back
Step 1: Understand the financial rationale that makes you act the way you do
I was listening to Fortune Favours the Bold podcast on Tuesday morning as I was preparing breakfast and getting ready to go to work. It’s Mastercard’s podcast hosted by Ashley C. Ford (She sounds like Maya Angelou!). She talks to her guests about all things money as she shares her struggles with managing her money as a freelancer and paying her student loan.
This particular podcast was on financial identity. One of her guests pointed out that by the time you’re 17 or 18, your money identity is already formed. That your family background shapes your emotional relationship with money.
And as an adult, this identity is usually not in sync with the amount of money in your bank account.
Take time to think about how your childhood and upbringing contributes to your financial anxieties.
I shared my story on the same here. My introspective stories were my first steps in my liberation journey.
If you do not come to terms with yours, you will keep living in fear. You will continue to make catastrophic financial decisions. Your past will keep dictating how you live your life now and in future. I’m guessing you don’t want that.
Step 2: Read! and talk about money
To get to a place where you finally feel calmer about your finances, you need to learn and verbalise your struggles. You will need to read and reread books. Many books. Most importantly, you’ll need to read actively by writing down the lessons. I’m sorry to say but there’s no short cut.
I have learnt from my journey that the more personal finance books I read, the more I find myself going to bookstores and online to shop for more. The more financial hacks I know, the more I want to know.
You will realize that one book won’t cover everything. There are so many aspects to this game that you want to arm yourself with the best ammunition in the form of wisdom.
You will need to remind yourself of these tips over and over. You’ll need to have conversations about money with your friends, family, or anyone who’s willing to listen. Sometimes I have these conversations with myself while looking at myself in the mirror. The me, myself and I combo works magic. One is reasonable and rational, the other is emotional, and the other is confused. It’s okay to do this. Sometimes we have aspects of our journeys that we’d rather keep to ourselves.
Different perspectives help you to navigate the confusion. These conversations help you understand that yes, there are Financial Guiding Principles you should follow, but you can customize them to fit your lifestyle and goals.
Demystify the shame. Unpack the fear. Learn. You are not alone.
I’ve also seen a discussion on how corporates give different compensation packages to two people who do the same work because they know the one who’s getting a raw deal will never find out. How would they find out anyway if we never talk about these things?
I shared my list of books and how I customize my environment for financial freedom in this article.
Step 3: Get an accountability partner
One of the people that I guide in her financial journey was stuck in so much debt that it crippled her from taking action. She didn’t know how deep in debt she was until I helped her through the process. It took her about two weeks to remember all the people and institutions she owed.
I remember her describing the process of coming up with her debt list as ‘it felt like the heaviest weight of my life had been taken off my shoulder. That I had removed the burden from my mind and transferred it to the excel sheet.”
And she later added that it was my job to figure out how she was going to get out of the mud. Lol!
One of my pals above is stuck in the same fear. She can’t bring herself to make a budget or face the real numbers of how much money she needs for her emergency fund, retirement and savings. However, I’m glad that she’s made progress in other areas of her finances.
An accountability partner will help you get things done. They’ll ensure that you follow through with your budgeting, savings and investment plans.
An accountability partner will also cheer you on when you hit your milestones. They’ll keep you in check. Remind you of how far you’ve come because let’s be honest, the more progress you make, the more you’ll want. And sometimes you’ll find yourself ignoring what you’ve achieved and only focusing on what more you can do..which can be a dangerous path.
The accountability partner is one of the roles I play while helping you get out of the mud. Need help? Hit me up at firstname.lastname@example.org
You should be far more concerned with your current trajectory than with your current results. — James Clear
Step 4: Budget and Spend less than you earn
I did a simple budgeting guide in 3 parts:
Part one- How to create a budget that works
How to create a budget that works
A simple, step by step guide to creating a budget that works
Part 2- How to audit your finances
How to audit your finances
The 10 questions that you need to keep your finances in check on a monthly basis
Part 3- Budgeting 101
Over the past few years, I’ve learned that to be good with money is like a good long term relationship. Instead of everything being chaotic peaks of highs and lows, there is a more quiet, sustained happiness that allows you to plan for the future, feel safe and comfortable and really figure out what you want in life. — The Financial Diet
Part 5: Pay off debt
“You dint learn about money at school because the system is incentivized to keep you ignorant.You weren’t taught to think and act independently because the system is incentivized to keep you obedient.Imagine if people consumed only what they needed.
The system would crumble.”@Orangebook-Twitter
If you’re stuck in debt, I wrote a detailed guide on how to beat the debt cycle.
If you’re addicted to buying rubbish, here is a guide on how to spend less.
How to stop spending money (14 best hacks)
Have you created a budget but you’re still struggling with how to stop spending your money? These 14 hacks will help…
Part 6: Build an emergency fund
If you want to put a stop to your knee jerk financial decisions, build an emergency fund.
I wrote a guide on how to about it here
How to Build an Emergency Fund
‘If you lost your job tomorrow, how long would you survive while maintaining the same lifestyle?’ How to build an…
Know that you will have a million different passions and desires and dreams in life and that being savvy with money will be the difference between never giving yourself permission to pursue them and being able to live without them. — The Financial Diet
There are more steps to this road map after the 6 above that I’ll cover in part 2 of this article. Keep in mind that some can be done simultaneously as I did with my debt payment and emergency fund steps.
You can’t manage what you can’t measure. You have to track your expenditure, your investments, your savings, and everything about your financial growth.
You have to deep dive into this process.
I’m currently reading Nudge: Improving decisions on Health, Wealth and Happiness by Cass Sunstein and Richard Thaler. The chapter on money points out that we spend more time in our lives on other ‘not very important tasks’ such as deciding which gadgets to buy than we spend figuring one of the most important aspects of our lives: money.
It’s an obvious statement but when you read it out loud or hear it from somebody, that’s when you realize how unconscious you are about something that controls so much of our lives.
Do the work. Okay? See you on the next one.