Being a master of your money is an incredibly empowering feeling. Having a strong financial foundation can remove the feeling of the helplessness, which so many people experience. While it may seem tough, mastering your money can be done.
While you might feel uncomfortable talking about money, having a shaky financial situation can take a toll on your well-being. Money is commonly cited as the leading cause of relationship issues in the USA. Money is also the top cause of stress for an individual based on respondents from 22 countries!
You can get a handle on your money starting today, and become the master of your money.
You may be thinking: What exactly do you mean by becoming a “master of your money? How can I master my money?”
Mastering your money is coming to the realization you are in control of every aspect of your finances.
Make no mistake, improving your financial situation will not be easy. However, there are a few easy steps to take to get a handle on your finances, regardless of where you’ve been or where you are currently.
Following these six easy steps will allow you to overcome the feeling of being overwhelmed, allowing you to get things back under control.
Whether it’s making money, spending money, or saving money, YOU are the master of your money – and your life!
In this post, you’ll learn about the following easy to take steps to get control of your money:
- Educate Yourself on Personal Finance
- Understand the Current State of Your Finances
- Categorize and Track Your Income and Expenses
- Set Goals and Use Affirmations
- Automate Your Finances
- Understand How Your Money Can Grow Over Time with Investments
Let’s dive into each of these steps to help you master your money.
Educate Yourself on Personal Finance
Becoming financially literate is the key first step to mastering your money. This is easier than ever in today’s day and age with an unimaginable amount of information available to you online and in books.
If you are new to personal finance, it can be very intimidating.
There are hundreds of terms made up my financial advisers and other “professionals” which seemingly are made up to confuse you.
You don’t need to know all of these terms, and can start with the basics. In the next section, you’ll learn the five most important things to track and calculate for yourself.
Also, by learning more about personal finance, you can learn what to do, and what not to do with your money.
People often say that the best way to learn is from making mistakes. I say the best way to learn is from others’ mistakes.
Luckily for you, there is a vast amount of people from all walks of life who share their experiences (including mistakes) on the Internet.
Check out this list of 200+ personal finance resources that I have curated. There are different forms of media for people of all tastes; the list includes books, blogs, podcasts, and more!
Understand the Current State of Your Finances
Have you ever been on a road trip and not knew where you were? If you’ve been lost, then you probably didn’t know where you were going. If you don’t know where you are going, you certainly aren’t going to get there.
With personal finance, if you don’t know where you are, then you will not be able to master your money.
Becoming a master of your money involves becoming aware of the current state of your finances.
If you are a beginner, then you may be lost and not knowing what things to track. However, the list of financial accounts to track isn’t too bad to pull together for yourself.
In a spreadsheet or on a piece of paper, think about and write down the following things you own, and which affect your financial life:
- Assets are things you own, and items with value (investments, houses, cars, cash, art, precious metals, etc.)
- Liabilities are things you owe to someone else (mortgage, student loans, credit card debt, etc.)
- How much money is coming into your bank account on a monthly basis?
- What are you spending on different categories each month? You’ll learn about this in a later section in this post.
- Credit Score
- What’s your credit score? You can obtain one per year free from Annual Credit Report.
With these five pieces of financial information, you will have a great understanding of your financial situation.
After finding these five pieces of financial information, you can do some calculations to further improve your understanding of your finances.
Calculating Personal Finance Metrics to Master Your Money
There are four main personal finance metrics you should be calculating to get a better understanding of your money over time.
Your credit score is a standalone piece of information which you can track over time. While credit score is important, this calculation is handled by the different credit agencies. You don’t need to worry about it.
The four personal finance metrics to track are net worth, income, expenses, and savings rate.
Net worth is simply your assets minus your liabilities. Essentially, your net worth is what is left over if you sold everything and paid off all of your debts.
Don’t be discouraged if your net worth is small or negative. You are taking control which means you will be able to improve it!
Next, we have income. You can find your income from your most recent paycheck, or if you are someone who works gigs, you can add up the number of deposits to your bank account from your bank statement.
Next, we have expenses. Expenses are the total amount of money you spend during a month – will help you identify any weaknesses in your budget.
You can track your expenses however you find most effective. I split my expenses into some broad buckets, and then dive deeper to get a better understanding of where my cash is actually going each month.
- Discretionary Spending
- Food and Drink
- Home Improvement
- Cash Withdrawal
- Principal on Mortgage
- Interest on Mortgage
- Home Insurance
- Property Taxes
- Private Mortgage Insurance
- Auto Insurance
- Auto Loan Principal and Interest
- Other Insurance
- Health Insurance
- Dental Insurance
- Umbrella Policy
- Life Insurance
- ATM Fees
- Other random charges and fees
- Social Security
The last metric to track is savings rate. Savings rate is simply the percentage of your net income remaining after paying your gross expenses.
With these four metrics, you can now start searching for ways to improve these over time.
Categorize and Track Your Income and Expenses Over Time
The next step in mastering your is to continue to track your income and expenses over time.
If you have never tracked your expenses before, you may be shocked by results! You need to be fully aware of your spending if you want to master your money. Tracking your expenses doesn’t have to be complicated.
The level of detail you go into when itemizing your expenses depends on your preference. Remember, personal finance is personal!
As shown in the last section, tracking your expenses can be general or detailed.
The minimum level of detail you should include in expense tracking is broad categories, such as automobile, utilities, or food. You can get really detailed if you so choose.
For example, automobile can be split into gasoline, insurance, and maintenance. More detail gives you more insight into your spending, but it also requires more work!
There is one notable tool that makes expense tracking a breeze. Mint is an app that allows you to sync your bank accounts to their secure platform. You can use it to automatically sort your expenses to varying amounts of detail. The only thing you will have to manually track is when you make transactions in cash!
Now that you have an understanding on your finances, let’s talk about growing wealth and becoming the master of your financial future.
Set Financial Goals and Use Affirmations
By this point, you’ve started learning more about personal finance and have calculated your net worth, savings rate, and credit score. Now, it’s time to focus on the future. Setting well-defined financial goals is a must for mastering your money.
Setting financial goals is a great way to start your financial journey.
First, it’s important to start with you why, and ask yourself what you want:
- Do you want to take more vacations?
- Spend more money on entertainment?
- Buy a bigger house?
- Put your kids through college?
Whatever your reason, having this result in mind will help with setting your goal.
Below I’ve listed some common examples of financial goals. Note: each one has two components: a monetary component and a time component.
Saying you’re going to do something isn’t good enough; you need to tell yourself when you’re going to do it by!
- I will achieve a net worth of $100,000 by age 30
- My debt sucks, and I will pay down $20,000 of my student debt in the next three years
- I will increase my net income to $80,000 annually by age 32
- Saving more is important to me, so I will increase my savings rate to 25% within the next two years
- I will improve my credit score to 700 within the next two years
- I will save $10,000 by the time my daughter is 10 years old to have a good base for college.
Having these goals in mind will help create the future you want and deserve going forward.
Use Affirmations to Change Your Mindset to Achieve Financial Success
Would you say you have a strong money mindset, or a mindset which needs improvement?
A very quick and easy way to improve your money mindset is through affirmations.
What are affirmations?
An affirmation is a statement of truth.
Affirmations strengthen us because we can “trick” our brains into thinking what we want in this world.
An affirmation is as simple as the following statement, “I’m good with my money.”
An affirmation also could be more involved, such as, “I’m a person who is in control of my money, improving my financial situation for the future, and building wealth over time.”
Typically, the statement you choose will be something you want to change in your life.
Improving your finances is more than just making real world changes. Mastering your money also involves making changes to your mindset!
Affirmations are one such mindset change. It is a truth that you repeat to yourself, and it can have a tremendous effect on your subconscious mind.
Each day starting off, do some affirmations and positive thinking exercises to help improve your money mindset.
Now, let’s talk about two slightly more advanced, but important, ways to continue to master your money.
Automate Your Finances
One of the most effective ways to master your money is to automate your finances.
What does automating your finances mean?
Automating your finances involves using technology to help meet your financial goals. It might sound scary, but it’s easy to step up and will help tremendously.
Automating your finances is as simple as:
- setting up direct deposit to your bank accounts
- setting up transfers to transfer money to investments
- scheduling auto payment on your debt and utility bills
With all of this, you can make sure you don’t miss a payment and are transferring money into your savings accounts.
Automating your finances is very efficient. No more spending time paying bills and worrying over whether you forgot anything; you just need to spend a few minutes looking over your statements each month making sure what you’re being charged is accurate!
Also, automating savings contributions will help you if you are one who suffers from making impulse financial decisions. You can’t spend the money you intended to save when your bank is automatically putting it away for you.
Take care though if you are automating savings contributions. You need to make sure you have enough remaining after saving money to cover your bills!
Grow Your Money Over Time through Investing
The final step to take when mastering your money is understanding your investments.
It is possible to grow your money over time through smart investing.
There are a number of assets you can own to become wealthy:
- real estate
- precious metals
There is certainly a learning curve to all of these assets, and some may not make sense for your goals.
However, if you want to grow wealth, master your money, and become financially free, understanding how to grow money is critical.
What I do mean by understanding your investments is that you have to be aware of:
- how much money you have contributed to your accounts
- the estimated return on your investments
- the allocation of your money across different assets classes
- what type of account you’re holding the assets in
- the cost of investing (fund fees, trading commissions, tax obligations, etc.)
There are some people who don’t even know how much they’ve contributed to their 401k or other retirement accounts. There are others who don’t even realize the exorbitant fees they might be paying on their mutual funds. This isn’t a good situation to be in.
Know what you own!!!
Once you know what you own, you can see where the room for improvement lies. Saving money is powerful on its own, but your savings are missing out on potential growth if you don’t properly invest!
Master Your Money and Become Financially Successful
Becoming a master of your money follows a similar process as becoming a master of anything.
You need to spend a great deal of time studying and learning.
You need to adjust your mentality to ensure that you act intentionally and positively.
Finally, you need to take action and put your newfound knowledge to work.
Becoming the master of your money may not happen overnight. However, by putting in the work, you can get a great handle on your financial situation.
Now, get out there and take control of your finances!
Readers: which step has been best for helping you master your money? What financial resources are some of your favorite to understand personal finance better?