- Author Jan Chatsky shares important steps anyone can take to build financial security.
- There are many tools that help savers create a budget and track their spending.
- Maintaining a budget and building savings will help people build a better relationship with money.
While everyone’s roadmap to a clear and free financial future looks different, there are some key themes that will benefit anyone on their path to financial freedom. One expert, Jan Chatzke, CEO of HerMoney Media and host of the “HerMoney” podcast, spoke with Insider about some of the bigger picture topics that will help guide people of all financial backgrounds toward the path to success.
Chatzkzy explains that the goal is to provide the latest in budgeting and financial planning to improve our relationships with money over time. It changes our behavior and our relationship to money — and what it means for our present and future — and can act as a catalyst for setting bigger, tangible goals for financial independence, whether it’s paying off large debts like student loans or medical bills, searching for a future with a higher quality of life, or retiring early.
There are some financial fundamentals, says Chatzke, that, if followed, will lay the foundation—and even protection rails—for building financial stability, and she explains four of the most important topics related to financial freedom.
There is a reason why a comprehensive budget is the first step in a financial plan.
Regulating your finances doesn’t have to be a daunting task, Chatsky says, but it is a necessary first step. Planning and budgeting helps savers track spending, prepare for emergencies, get out of debt, and plan their financial progress. The latter topics aren’t all necessarily dependent on each other, but an overall budget is the critical building block to prevent any setbacks on one’s path toward financial freedom.
The only way to create an effective budget is to know how your money is spent and keep track of what your money is doing for you.
“Knowing where your money is going is the only way to build a realistic financial life,” Chatzke says. “When you create a budget and know where your money is going and if you’re funneling the right amount of money into savings, you actually have more freedom in deciding what to do with the rest,” Chatzky explains.
Budget can be tracked using a mobile app like Mint.com while some major banks also offer budget tracking tools through their online banking services.
While setting and sticking to a budget may seem restrictive and limiting to some, Chatzke says that is what ultimately makes one have more freedom. Take a moment and sit down with all your bills, expenses, and income, Chatzky adds, and be honest with yourself about how you’re spending your money, perhaps creating a spreadsheet of all your monthly expenses and making a plan to reduce unnecessary spending — late afternoon coffee run, streaming services, Doordash delivery or Grubhub – Save a certain amount of money every month.
When making a budget, think about what’s important first. Major expenses like housing, groceries, insurance, and credit card payments are likely to be the biggest for most people. Then, savers should have a set amount to be included in savings each week or every month which should be as fixed as paying for housing — even if it’s just a small percentage of the person’s wages.
There are some apps — like Acorns, Chime, and Digit — that help savers by rounding up daily purchases to the next dollar amount and then depositing those smaller amounts into a separate savings account. Anyone who gets paid knows where their money is coming from, but it’s also important to know where your money is going.
“It’s so easy to pay for everything now and spend the money,” Chatsky said.
Make getting out of debt a top priority.
Taking on debt from month to month and year to year will make it difficult to save money.
“Debt stress is the number one thing that makes us unhappy with money,” Chatzke says.
Those with good credit have a few options for debt consolidation, whether that’s through credit card balance transfers with promotional upfront rates, personal loans, or using a line of credit for home purchases.
“Paying off debt is more important now because interest rates are higher, and if interest rates go up again, that makes debt more expensive,” says Chatzke.
It’s time to make a real effort to pay off the debt because saving money is a bigger priority. It may take some time, but with discipline and determination, it will eventually be worth it. Once you are out of debt, you can invest that money in savings and continue to build a strong financial foundation for yourself.
There are many ways to pay off debt, but the snowball method starts with paying off the smallest amount of debt first and then applying the amount of debt paid to the next debt due. This process will continue until all accounts are paid. With this method, you intentionally pay off your debts, and with each bill paid off, it gives you a feeling of control over the debt.
Make sure you get the matching employer.
If and when possible, invest in a work-based retirement plan and make sure you accrue enough to get your matching employer because it’s basically free money for the employee. According to the Bureau of Labor Statistics, 68% of workers in private industry had access to retirement plans in 2021, which means that the majority of working adults have some type of retirement benefit through their jobs. This is one of the best ways to start saving and investing.
“The best thing about a 401(k) is that it’s automatic and you can set it and forget it,” Chatzky says.
Employer matching can significantly increase retirement savings in the long run, although anyone with a 401(k) benefit should check their employer’s vesting schedule (the vesting schedule is the years of service required before an employee can retain all The money corresponding to the employer).
Having an emergency fund will actually keep you out of debt.
On the way to financial security, it is important to create a huge emergency cash fund. An emergency fund will protect your financial stability when the unexpected happens. Make it easy on yourself and set up automatic deductions from your paycheck to a savings account on each payday. A good goal is to have enough savings to cover 6 to 9 months’ worth of expenses in the event of a job loss or other major disaster.
A YouGov survey for the Economic Security Project reported that 49% of Americans would not have $400 for emergency expenses.
“An emergency fund is insurance against credit card debt. If transportation stops, the water heater dies or there is an unexpected medical bill, you will be able to use the cash in your emergency fund to cover it instead of using credit or taking out a high-interest loan,” he says. Chatzi says.
This is also why budgeting is important because when you know where to spend your money, you’ll see where you can cut back to build your own emergency fund.
Modify your money mindset.
Are you stressed or worried about money? Have you taken the time to understand your feelings about money? Chatzky encourages having a healthy mindset about money, which certainly sounds easier said than done. Financial behavior, which is the way you handle your money, can be adjusted as early as childhood. It is our personal feelings about wealth and the psychology of being in debt in exchange for financial freedom that will inform how one handles one’s money.
“People deal with money based on their own biases, experiences, and fears, and this affects their money management. For example, if you grew up worrying about money or you feel like there wasn’t enough money, it could affect the way you handle money today. Schatze told Insider.
It is often these pre-existing feelings about money that lead many to believe that money is dominant, when this is not the case. Jane wants people to have their money.
“Owning your money means owning your life, if you always feel like you’re late or in debt, it’s hard to feel in control,” says Chatzke. “But if you can come up with a plan, know where your money is going and have an emergency fund, that’s a much more robust place in terms of your money and financial stability.”