When it comes to Father’s Day, there is definitely no shortage of amazing gift ideas, from tech gadgets to barbecue gear and subscriptions to just about anything else imaginable. As you can see from this list here, almost anything is possible. But there is a gift that many do not even think or write that Dad could appreciate more, and that is to give him the gift of having financially independent children. Here are several ways to show your father that you are in control of your finances and that you are on your way to financial independence:
Follow the golden rule of financial wellness: control your cash flow to spend less than you earn.
Being aware of what goes out each month and comparing it to what goes in is a vital part of the financial independence process. You can do this in a few easy steps:
1) Gather your bank and credit card statements (whatever you use to pay your expenses each month).
2) List all your expenses starting with the last month (although the last 2-3 months or more is ideal to help capture irregular expenses). If you prefer to write things like me, use the pencil and paper method. If you prefer a spreadsheet, consider a worksheet like this to get started. For the more tech-focused, try an easy-to-use budgeting app like PocketGuard or mint And for those budgeting with a partner, consider Honeydue. Choosing an approach that suits your personal preferences and lifestyle is key!
3) Make a tally of your expenses and compare them to your monthly take-home salary. He spends more than he earns? Are you spending more than you had mentally accounted for? Do irregular expenses periodically exceed your limit? Just interested in being able to save more?
4) Challenge your spending and create a spending / savings plan that will put you in control of your money and make your spending more useful. You’d be surprised how things can find a way to creep into your spending and steadily increase your spending while eating into your savings. Things like subscriptions, gradually increasing cable / wireless / insurance bills, irregular expenses, or expenses to go out again now that the world is opening up – these can all blow the budget! Take a look at these (mostly) painless ways to save money for some ideas. The 30/50/20 The rule is an approach that seems to work for many people, and here are some other ideas about money management strategies that might work well for you.
Set savings on automatic: The first step is to build your emergency cash cushion so that Dad is not one!
1) Create a separate savings account specifically for emergencies that won’t get mixed up with your spending money. Take a look at a site like bankrate.com for some easy options.
2) Set automatic savings every month so you don’t even have to think about it. When you do this, you greatly increase the likelihood of moving forward. You can do this through an automatic withdrawal from your checking account or you may have the option of directly depositing part of your paycheck into your savings account. Just check with your company’s payroll department how to do it. Here are some tips on how to prioritize saving over debt and other priorities.
Make a plan to pay off your high-interest debt and strengthen and protect your credit score.
1) Make a list of your debts and choose a debt settlement method that works for you. The two most popular approaches are the debt avalanche and the debt snowball. The flood of debt focuses on making your maximum payments on your debts with the highest interest rate first and then moving the payments to the next highest interest rate until everything is paid off. This is done in addition to making the minimum payments on all of your debts. This approach saves you more time and interest.
The debt snowball focuses on making maximum payments on your lowest balances and rolling that payment to the next lowest balance until everything is paid off. Like the avalanche approach, this is being done while making minimum payments on all debts. This approach gives you some quick wins and tends to work very well for those of us who have a lot of different debts and need that extra reward and motivation to keep going.
I personally used a hybrid approach. I started with the debt snowball and then moved on to the debt avalanche once I felt the confidence and motivation of those quick wins. Look at this debt avalanche calculator and that debt snowball calculator And start!
2) Strengthen and protect your credit score by first reviewing your credit reports at annualcreditreport.com and dispute / clean up any erroneous or outdated data. You can do most, if not all, online! This step is very important as this is the information that is used to generate your credit score.
Then, check your credit score using a site like Karma Credit or Sesame Credit. They are focused on giving you tips, resources, and reminders that will help strengthen your score. The big impact elements are making your payments on time (eliminate this problem by setting them to automatic) and keeping your credit utilization below 30%. You can read more about tips for building credit here.
Start saving for your future
Einstein famously said: “Compound interest is the eighth wonder of the world. Who understands it, earns it. The one who doesn’t pay it, pays it. ”Retirement may seem far away, but starting saving as soon as possible will allow you to use the power of compound interest to your advantage.
Start by making sure you take advantage of the 401 (k) coverage offered by your employer. That’s free money! Later run a retirement estimate like this to help determine how much you need to save to get on track. Most people use the replacement of 80% of their income and retirement at age 65 as a starting point. If you want to get there earlier, play by increasing your savings, reducing expenses, and improving the way you invest to help you close the gaps.
If significantly increasing your 401 (k) contributions feels overwhelming, I don’t blame you. One easy trick is to take advantage of an automatic savings ladder in your 401 (k) plan to help you save seamlessly and automatically without feeling it (especially if you schedule it for when you normally get a raise each year!). You can use this resource as a simple comprehensive guide on how to plan for your retirement.
Be clear on your “financial why”
In my opinion, this is the most important step in achieving financial independence. If you want to get to what really drives and motivates you to financial wellness, it all comes down to your psychology and your relationship with money. By establishing the “why” behind your finances, you add purpose to your daily decision making by questioning whether the decisions you have made and will make align with your financial “why.” You can read more about this process in a previous post I wrote here.
Taking the time to do this will suddenly turn you away from impulsive purchases or trying to keep up with neighbors or friends (the hedonic treadmill). Instead, your financial decision-making process will start with your “why” and wonder how that decision aligns with what is most important to you and the future you want to design. To dig a little deeper, consider determining your monetary personality. taking a test like this.
As for me, I plan to spend quality time with my children this Father’s Day and will continue to instill a desire to achieve independence not only physically but financially as well. I hope that one day you will see these lessons as a mutual benefit that you can pass on to your children, and I hope the same for you. Who knows? If we all do this enough, we could see a future free from financial stress and filled with financial well-being!