If you're just starting out and are already thinking about
what financial health might mean, you are presenting yourself
with a golden opportunity.
When investing, time is one of your most powerful allies--one
that most people weaken by not investing when they first start
Unfortunately, most people who are just starting out aren't
thinking about their long-term financial health, either because
they don't know the issues, believe that they can take care
of it later, or don't make enough money to make a difference.
What follows are six habits that, if followed, should put
someone who is just starting out on the path towards controlling
their financial destiny. These habits may convince you that
it's a really good idea to start planning now, that beginning
earlier rather than later makes it much easier to achieve
financial goals, and investing even small amounts is very
Habit #1: Keep Good Records
"What can be measured can be understood. What can be understood
can be altered."
- Katherine Neville
Without consistent, organized, and accurate records, financial
planning is nearly impossible. Good records allow you to:
- Gauge where you stand financially--the foundation for
sound financial planning.
- Make reasonable and effective changes in your financial
- Measure your progress towards your goals.
To keep good records, you need to create a filing system
that allows you to track:
- What you earn (income)
- What you own (assets)
- What you spend (expenses)
- What you owe (debt)
View a list of essential files for an organized, accessible,
and easy-to-update Financial
Habit #2: Examine and Clarify Your Values and Financial
Knowing how your values inform your financial goals, and
making those goals specific and concrete, makes it possible
to start working toward achieving them.
Without the specific direction that financial goals provide,
it is difficult to create a budget, to have a compelling reason
to stick to it, or to have a very good chance of ending up
where you will want to be 2, 20, or 40 years down the road.
Learn more about setting
goals and objectives.
Habit #3: Determine Your Net Worth
Once your financial records are organized, it is easy to
figure out your net worth--he way most financial planners
Why bother to figure out your net worth, especially if you
already know it is either very small or even negative (say,
for example, if you have significant student loans outstanding)?
Calculating your net worth every year gives you a way to measure
your progress toward your financial goals.
Use MsMoney.com's Net
Worth Tool to see where you stand.
Habit #4: Know What You Earn And What You Spend
Few people know exactly how they spend their money or even
exactly how much money they make. Without knowing this basic
information, it is very difficult to:
- Create the budget that allows you to manage your money.
- Make informed decisions about your spending.
- Chart realistic changes in your spending.
Financial planners usually call this process figuring out
your cash flow. Learn more and use MsMoney.com's Cash
Habit #5: Build a Budget (and Live By It)
Wealth is determined not by how much you make but how much
you keep. The preceding four habits allow you to establish
the fifth--building a budget.
A budget may sound dull, laborious, and a little too deliberate,
but a tremendous amount of wealth--not to mention the probability
that you will achieve your financial goals--can be found in
the details of your daily spending.
Learn more about money
Habit #6 Reduce Your Spending
Many people who are just starting out claim that they can't
find the extra money to invest that will help them start working
toward their financial goals.
But even a small amount of money invested in tax-deferred
retirement accounts can--thanks to the wonders of compounding
interest--transform itself into a small fortune.
How much is it worth to save an extra $100 every month? If
you start when you're 24, invest the money in a tax-deferred
retirement account, and get a 10% return on your money, by
the time you're 34 you'll have over $20,000. By the time you're
65, those little investments will have grown to $616,000.
The benefits of saving and investing your money is magnified
over time--so the earlier you begin and the more you save,
the more time your money will have to grow.