4 steps to building a resilient financial life

Life can throw you turns, bring you unexpected events and expenses. This is why building financial resilience in your life can be so powerful — and it starts with learning to have a basic sense of how your money works and what you can do to make it work better for you.

If you feel a little confused or confused about how to organize your finances, the first thing to start with is to define your goals. What do you want to achieve? It might be sticking to a budget, paying off debt, saving for retirement, setting up an emergency fund, or saving for big expenses like a car, house, or child’s education.

Let’s learn four essentials for building a more resilient financial life.

Step 1: Be smart about your goals

Whatever your goals, I encourage you to put pen to paper to jot them down. I like to use something called the SMART Goal Setting Method, which means:

  • specific
  • Measurable
  • Action oriented to
  • realistic
  • time restricted

For example, if you want to pay off debt, start with the actual dollar amount of the amount you want to pay off. This makes it specific and measurable. Then, take action by deciding what steps you will take. If you’re paying off debt, perhaps you can reduce eating out or return the tax amount to your credit card bill.

By making your goal specific, measurable, and feasible, you’ll be able to tell if your goal is realistic — and if not, you can adjust it, such as by extending the time frame. Speaking of time, T in SMART refers to a time-limited: give your goal an expiration date so you have a goal in mind. Once you reach that deadline, you’re encouraged to hit the next goal, and then the next – and that’s how we make progress in our financial lives.

Step 2: Be Organized

I like to use the analogy of building a house. It’s fun to dream about your own floor plan and decorations, but home building doesn’t really begin until you start laying the foundation. Creating a more formal budget is the foundation of our financial life, helping us know exactly where the money is flowing so that we can better allocate it to our many needs, desires, and goals. Calculate every dollar that comes in, including earnings from your job or other sources, such as rental property or side hustle. Next, keep track of your expenses – everything from rent and gas to coffee and birthday gifts. Once you’ve listed all of these expenses, separate them into two columns of needs and wants.

This part will be different for everyone. For example, we all need clothes, but do you really need new clothes every month? Maybe you do if you have a growing child or need a new coat – but maybe not, and maybe you could put new clothes in the ‘need’ column instead of the ‘need’ column.

Another helpful tip is the so-called 50-30-20 rule: Consider setting aside 50% of your budget to cover needs like bills, food, housing, insurance, and utilities; Then the next 30% you want like streaming services, vacations, or new gadgets; Then the remaining 20% ​​for savings — such as a retirement account, stock portfolio, and emergency fund.

Step 3: Be realistic

Practice makes perfect, so think of your financial life like playing a game of darts, where each triangle on this dart board represents a different aspect of what you said you would spend or save to reach your goals. The more you practice throwing the darts, the better you will be at hitting the mark consistently.

Of course, many of us live off our paychecks to pay checks or accumulate debt to make ends meet. If this is where you are today, it can still be useful to get a clearer picture of your goals, income, spending, needs, and desires. Write down everything and try to decide where you can cut back. For example, maybe you need your mobile phone, but is there a less expensive plan that could work? If there’s really no wiggle room, find ways to generate additional income – perhaps turning that project of passion into a side hustle or getting a flexible part-time job.

Meeting their needs can be challenging, so it is important to put in the energy to build a financial cushion when the opportunity presents itself. You may also have heard that it’s a good idea to save three to six months of basic expenses as an emergency fund, but for many of us, that’s easier said than done. Just keep in mind that savings don’t appear overnight. Start small, figure out what fits your lifestyle, and save — even if it’s $5 at a time.

Step 4: Get support

Financial literacy is simple, but not necessarily easy. The sooner you start budgeting, saving and investing, the more time you will have for your money to grow and help you reach your goals. Even small amounts of invested money can accumulate over time, thanks to the power of compound interest. So make sure you’re working on building your financial resilience today so you can live the life you’ve always envisioned when you retire. If you’re feeling left behind, don’t panic – just start today, and start as small as you like.

Our finances are an important area of ​​our lives, which is why I personally find it very reassuring to know that there are many types of professionals who can provide support as you evaluate your options, prepare your next steps, and work towards your goals. You may be ready to put together a financial support team with the help of lawyers, accountants, or financial advisors and coaches. Many companies offer their employees access to financial education, advice, and resources as part of their benefits package, so check if your company offers any additional support that can help you take control of your financial journey today.

This article has been prepared for informational purposes only. The information and data in the article were obtained from sources outside of Morgan Stanley. Morgan Stanley makes no representations or warranties as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. It does not provide individually tailored investment advice and has been prepared regardless of the individual financial circumstances and goals of the people receiving it. The strategies and/or investments discussed in this article may not be suitable for all investors. Morgan Stanley recommends that investors evaluate certain investments and strategies independently, and encourages investors to seek advice from a financial advisor. The suitability of a particular investment or strategy depends on the investor’s individual circumstances and goals.

Head of Financial Wellness, Morgan Stanley

Crystal Parker Boisseryth, CFA®, is the Managing Director and Chief Financial Officer of Morgan Stanley at Work. In this position, she is responsible for working with corporate and institutional clients to create, implement and manage financial wellness programs that meet the needs of their employees.

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