The Journey to Financial Empowerment: 8 Tips to Get On the Right Track

people celebrating financial empowerment

Five people celebrating financial empowerment by holding up icons of common financial goals.

73% of Americans list finances as their #1 stressor. Many of us are one expensive car repair or unexpected medical bill away from disaster. But it doesn’t have to be this way. Financial empowerment is about being in control of your finances instead of your finances controlling you.

Financial empowerment is about setting financial goals, building and executing a plan to maintain your chosen standard of living, and having a strategy to handle unexpected financial challenges that pop up along the way. 

Financial empowerment isn’t about how much money you have; it’s about how you handle the money you have. 

Whether you’re at entry-level wages or making six figures, becoming financially empowered is about getting in the driver’s seat of your finances. That way, you can make better long-term decisions. Are you ready to build the future you want without stressing over your next paycheck? Here are 8 financial empowerment tips to get you on the right track.

1. Change Your Outlook

One key to financial empowerment is understanding your emotional relationship with money and how this may drive your financial decisions. People often have complex emotions about money and rationalize their way into decisions that may not be best for them. Our attitudes regarding personal finance are strongly influenced by our childhoods, and part of becoming financially empowered is recognizing how those attitudes affect our finances in the present day. 

Financial empowerment is about mind as much as money. Planning, taking the time to strategize and aligning your spending and savings with your long-term goals all contribute to a logical, calculating approach to money. 

For example, you might want to start a business, but your fear may lead you to assume you’ll never be able to afford to quit your job and pursue your dream. Financial empowerment helps you overcome that fear, draw up a plan, and say, “I can’t afford to quit my job today, but if I put $500 into savings each month and raise my credit score by 100 points to qualify for a loan, I can transition out of my job and start my business nine months from now.” 

2. Seek Education

Much of our financial knowledge comes from our parents. As books like Rich Dad, Poor Dad illustrate, financially empowered people pass their wisdom on to their offspring. Many schools don’t teach personal finance — and those that do usually only cover the basics.

Fortunately, there are many free resources out there to get a solid grounding in financial principles—you’ve already discovered one of them! Whether you prefer learning via podcast, video, books or blogs, or even interpretive dance, it’s never too late to learn how to manage your money. 

3. Set Your Goals

You must set a destination before you can figure out how to get there. That doesn’t mean you can’t change your mind or that you have to stick to an exact plan, but without knowing what direction you’re going, you may be driving around in circles. 

One person might want to start a business, while another wants to start a family. One person may wish to travel a lot now, while another wants to retire early. You determine your goals by what is important to you; it’s just important that you have them. Many people find the SMART goal framework to be useful when setting their financial goals. SMART goals are goals that meet the following criteria: 

  • Specific
  • Measurable
  • Achievable
  • Relevant
  • Time-bound

Besides big, long-term goals, setting smaller, shorter-term goals can also help guide you along the way. They can be ongoing goals (like a yearly goal to maximize your 401k and IRA contributions) or specific goals (like deciding to pay off a credit card by a set deadline.) 

4. Fix Past Mistakes

Many people struggle with managing their money and maintaining their credit before committing to learn and do better, and that’s OK! It’s not only never too late to seek financial empowerment, but it’s also never too late to fix past mistakes. 

If your credit history reflects past mistakes or challenges, or if you’ve never established a strong credit history, you have the ability to fix that. Many of the things financially empowered people do to manage their money also contribute to building or maintaining a good credit score. Having good to great credit is essential to borrow money at advantageous rates. 

5. Create A Plan

Your goals are the destinations you plan to visit along your financial journey. Now you need a road map to get you where you want to go. 

The first step is budgeting. No matter how much money you make, financial empowerment comes from how you handle your money. Understanding what you make and spend each month helps you make the right decisions to stay on track with your goals. 

Taking the time to budget properly can help identify places you can cut back on spending. If you have set goals, you can determine how much you need to save or invest each month to get there, then include that in your budget. Treating your savings/investment amount like a bill and depositing it in a different account when you pay your other bills can help keep you on track. 

6. Make Your Money Work For You

While your plan should include budgeting money each month for saving or investing, part of managing your money is making your money work for you. It’s crucial to balance accessibility to savings for emergencies with return on investment. By taking your money and investing it wisely, you can build wealth with no extra effort on your part! 

Besides maximizing your 401K and IRA, it’s smart to look for diversified investment opportunities. Peer-to-peer investment offers an opportunity to invest in other individuals and manage your investments on a scale that works for you. For example, funding peer-to-peer personal loans has a low minimum investment with historically strong returns and can be an excellent way to diversify your investment portfolio. 

7. Prepare for Financial Challenges

No matter how good your map is, your journey can get sidetracked by a detour. An unexpected medical bill or car repair can throw you off your pace. This can be stressful, but you wouldn’t turn around from a road trip just because you got stuck in traffic for a while, right? Planning isn’t just about your budget but also about preparing for the unexpected. 

A financially empowered person knows challenges happen. They’ve planned and considered their options, so they already know what resources are available to them when faced with an emergency. Instead of reaching for a high-interest credit card, they might opt for a personal loan or, if they’re a homeowner, a home equity line of credit. Either option carries lower interest rates than most credit cards. 

By planning ahead, you can make smarter choices even when faced with an emergency. That’s the advantage of seizing financial empowerment. 

8. Monitor Your Progress

You have goals, a plan, and a new mindset, but you can’t just stay on cruise control. Monitoring your progress regularly and adjusting as needed is critical to your financial success. 

It’s a good idea to sit down and review your budget and plan every few months or any time your income or expenses change significantly. Track whether you’re sticking to your budget, your saving and investing goals, then identify places to adjust your spending. If your income has gone up or expenses have gone down, adjust your savings and investing goals accordingly. 

It’s also important to monitor your credit, so identity theft or errors in your credit report don’t undermine your hard work. You’re entitled to a free credit report every year from each of the three credit bureaus, and there are also apps such as Credit Sesame that monitor your credit for you. If there are items you don’t recognize on your credit report, you can dispute them in writing and the credit bureau will investigate them. 

Become Financially Empowered

No matter what your income is — or how much debt you’re in — financial empowerment can be attainable, help reduce your stress, improve your standard of living and help you achieve your long-term goals. Seize control of your finances instead of letting them control you. By doing so, you’ll be that much closer to living your best life. 

Read more:

  • 13 Ways to Save Money on a Tight Budget
  • Building Wealth: A Beginner’s Guide to Securing Your Financial Future
  • How to Use a Credit Card Responsibly
  • 5 Simple Budgeting Tools for People Who Hate Math

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The post The Journey to Financial Empowerment: 8 Tips to Get On the Right Track appeared first on Prosper Blog.

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