2021 was a rocky and turbulent year. From an emotional standpoint, we’re all looking at 2022 as the year where we will take control of the stability that was taken from us this past year.
From a financial standpoint, many of us may have found ourselves in 2021 conducting bad money habits and taking on debt that we were in no business taking on.
Nonetheless, 2022 is the year that you are going to finally take control of your family finances instead of letting your money control you. You know it’s time to get more serious and make your way to financial freedom. Here are 4 ways to take control of your family’s finances in 2022.
- Create A Budget
As a parent, creating a budget is essential to your financial health. They allow you to keep a modicum of self-control on your family’s spending. They will show you, clear as day, where you can start saving money. In fact, I would go as far as to say that trying to make ends meet without a budget is like trying to drive a car without a brake pedal.
You can simply begin tracking your own spending using a spreadsheet. You want to get an understanding of the relationship between your income and your spending. Times where your income minus your spending is positive, you have savings. Times where income minus spending is negative, you have debt. It’s that simple. Since we want to avoid debt, and since your income is probably set in stone, regulating your spending is key.
The first thing you want to do is budget out for four weeks of take-home (after-tax) pay. This means if you’re paid weekly, your monthly income is based on four paychecks. If you’re bi-monthly, you might want to grab your February pay stubs or a calculator and see what 10 workdays of pay looks like, then multiply by two.
The next step you should take is to subtract all of your spendings that you can’t cut, such as:
- Electric, Natural Gas, Water/Sewer, Internet
- Gasoline, and Car insurance
- Groceries
- Mortgage or rent, Home insurance
Once you have begun to track all of your expenses carefully, you will begin to notice where to make appropriate cuts, good places to shift your resources, and other goals you might want to make. You get to decide what is meaningful.
- Pay Of Your Debt
Now that you have your framework, it’s time to paint the picture. If you are properly optimizing and regulating your spending habits, you should have money on the side to pay any lingering debts you have. You want to pay debt down fast (especially debts with high-interest rates), so you pay as little interest as possible.
- Create An Emergency Fund
Covid-19 taught us that things are unpredictable. It is of the utmost importance to prepare for emergencies. You want to save up for an emergency to cover 3-6 months of expenses in case something goes horribly wrong. You will need this money available to you in a separate, liquid savings account, not an investment fund.
- Save & Invest In Your Future
Anything else that’s leftover from the first three things on this list should be invested. Investing goals vary between families. Perhaps your dream is to retire early… or it’s to launch your own business. Perhaps you want to set up your kids with college funds? Either way, you want to invest as early as you can so that you can take advantage of compound interest and live the life you desire. In today’s day and age, there’s an abundance of information pertaining to investing money in the stock market, or even disruptively innovative concepts such as starting a crypto savings account.
Final Thoughts
Your ultimate goal is to take steps toward total, financial independence. This can take years or even decades, but don’t fret about the timeline. The point is that this should be your biggest financial focus, and the more you put toward this step, the more your money compounds. Your money can work harder than you do.
And, just remember: always live within your means, and try to save up for capital expenses before buying.
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