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A couple weeks ago on The Money Mastermind Show we talked about how to get started, which isn’t something I’ve thought about for a while now.  Sometimes we get so wrapped up in comparing dividend growth metrics and TFSA vs RRSP arguments that we forget the basics are still what matters by far the most when it comes to your personal financial health.  Check out the episode here if you missed it and on the overall spectrum of personal finance blog readers you might be closer to the “beginner” side of things.

1) Get it all down on paper.

Hey, computers are great.  If creating a spreadsheet or using some sort of integrated app helps keep you organized – go for it!  For many people though, I believe this quest for technological perfection can lead to overall procrastination when it comes to getting finances sorted out.  Look, with a good-old pencil and paper you can erase, draw arrows and just quickly shuffle stuff around if need be.  Whatever you do, the key thing is just to get your arms around what your financial situation actually looks like.  What sort of debt are you in?  What interest rates is that debt?  What assets do you own?  What is your take home pay every week/month/year and what do your weekly/monthly/yearly expenses look like?  I know this stuff isn’t sexy in the same way earning huge investment returns is, and it isn’t anyone’s idea of a happenin Friday night, but it really is the first win you need to get under your belt.

2) Figure out where you’re spending your money and decide if that’s where you want to be spending it.

The idea that budgeting has to painful is ridiculous.  For me it’s a little bit like getting off of the couch and going for a jog – sure it takes a burst of initiative to break that inertia, but there are so many positive spin-offs once you get going that it’s almost always worth it.  After you’ve written down where you’re spending your money ask yourself this simple question: Where am I spending my money that gives me the most pleasure?

Related: Transitioning from the Starving Student Budget to a Real Budget

Personal finance gurus love to hate on buying coffee every day, but hey, if that’s what gives you enjoyment every morning and gets you out of bed who am I to tell you not to treat yourself to some java four days a week?  What most people find out when they write everything down is that they’re spending a lot of money in places they hadn’t realized.  Sure going out to dinner is nice, but is it $300 per month nice?  Maybe it is for some, but for others not so much.  I’m a sports fan, but for me going and seeing live sporting events is rarely worth the financial sacrifice at this point in my life.  Maybe when I have a little more disposable income – until then, beer is about a third of the price in my basement as it is at the game and the parking is free.

3) Decide if you’re current income and current expenditures are going to meet your debt pay down and/or savings goals.

Now that you know where your money is going every month you might want to think about what sort of savings or debt pay-down goals you might want to have.  Often folks want to skip right to this step, but until you know what your month-to-month income and expenses situation looks like (the gurus call this one “cash flow”) it doesn’t make sense to try to take a disorganized approach that won’t feel much like a “win” at all.  If you have high-interest debt such as a balance on your credit cards this is a great place to start.  I know every second personal finance post mentions paying off your credit cards, but since so many of us continue to carry crippling balances it is worth repeating.  After you get done with the high-interest debt you should ask the smartest man or woman at your workplace (you know, the one that probably should have been promoted, but the boss needed them were they were to keep making themselves look good) if you have any sort of employer match pension plan.

The idea here is that simply by putting some cash away like you should be doing anyway your employer will match that amount up to a certain point and put it in your retirement account as well.  It’s a great deal and a no-brainer if it’s available.  Unfortunately, many people don’t contribute the max and pick up this easy win on an annual basis.

4) Find one or two online or in-person support groups that are looking to help people in your situation.

This is a win my friends on the show put forth and I honestly hadn’t thought much about it before.  When I was learning about this personal finance stuff I took a bit of a lone wolf approach for a long time.  Even if you’re a bit of introverted geek that enjoys reading about personal finance like myself, you can still learn a ton from interacting with people who have different insights and ideas.  For people that are intimidated by all the nuances of financial stuff and/or don’t have time to read dozens of blogs and books, finding a support group that fits your style and tastes can be a life saver.  Online groups work great but you can also check out places like your church, community centres, and/or post-secondary workshops for groups of people that meet periodically to try to help each other through some of this money stuff.  I’ve noticed that sometimes what people really need is just to know that other people are going through similar struggles and that they aren’t failures just because they’re learning a subject area that most people have a real deficit in.

5) Figure out your insurance needs

Insurance always seems to get swept under the proverbial rug when it comes to writing about money.  It’s too bad because you can do a lot of things right in your personal finance journey but if you don’t get a hard-fought win here, it can cancel out a lot of good work in other areas.  Preet Banerjee had a fantastic chapter in his new book about “disaster-proofing your life”.  I’ve since blatantly stolen that phrase because I believe it really sums up why you need to spend an afternoon figuring out this insurance stuff.  Whether it’s trusting a good buddy you know won’t screw you over or checking out some financial blogs for advice, understanding how to make sure a random accident doesn’t bury you under a financial mountain of bad luck is a must-win game – unlike all those cliche’d times sportscasters who lack for variety and vocabulary say something is a must win game roughly 679 times per season.

The best time to start learning about your finances was when you were 12-years-old.  The next best time is today.  Ultimately the truth boils down to the same fundamentals as it did in Dickens’ time:

– “Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.” – Charles Dickens, David Copperfield

Article comments

Phil says:

Point 2 is probably the most important thing to do when you are young and starting out. Realization of where and what you are spending you money on is essential to setting up long term goals. verifying that you are spending on things that are aligned with what you value adds a sense of pride to achieving the goals you set too. Now for me I disagree with budgeting at first and believe that it is better to just track income flow in and out for a period of time to see where it comes from and where it goes. Once you know this then your can modify your habits to attain your goals, and if budgeting is who you want to control your flow then this is where it should be used. Knowledge is power, and the little steps we take early on to understand who we are and why we do things will make things a lot simpler down the road as life’s finances become more complicated as life progresses. – Cheers, and great post for those starting out!

Kyle says:

Thanks for the feedback Phil!

I firmly believe that the single most effective thing people can do to take charge of their finances is to write down all their earnings and all their spending. As soon as they get grounded in that reality, they motivate themselves to make necessary changes.

Kyle says:

Thanks for the comment Stefanie. Love the blog name btw.

Jonny says:

Hey Kyle,

Thanks for the post.
I think writing it down is what got me started on personal finance and kept me motivated in the early stages before I was even really making any money.
I’ve also learned that writing it down wasn’t enough for me as I could always cheat by using a credit card or adjust my budget to justify my burning desire for that premium case of beer versus the domestic! As I continue to earn more and grow my net worth it has become important for me to set up those automatic saving withdrawals!

Kyle says:

Hey Jonny, thanks for the comment, we have your article in the hopper!