Five Steps to Kick Off Your Personal Finance Journey

In 2019, I graduated law school with over $220,000 worth of debt, a six-figure salary, and no clue how to manage my finances.  After landing my “dream job,” it turned into a nightmare that I had no clue how to escape.  I stuck around for almost two years, until I had enough and quit.  Instead of living modestly and budgeting the little money I had managed to save, I decided to go on a month-long, “Eat, Pray, Love” journey traveling to Antigua, Hawaii, and Costa Rica–I had a blast!  I came home to no savings and a mountain of debt.  I knew then I had to make a change.  

That’s when I discovered the FIRE (Financial Independence, Retire Early) movement and I was immediately sold.  FIRE is a movement of people who save and invest aggressively to allow them to retire way earlier than most people, who generally retire at the age of 65 (if they are lucky).  Since learning about FIRE I have paid over $100,000 of debt, learned to invest, and gained peace of mind about my future.  Even though I am super excited about FIRE, I quickly realized that there are not enough women of color  talking about this. 

I am now on a mission to teach women of color how to become financially independent and live their best lives.  In this post we will be covering five steps to get you started on your journey to financial freedom! 

Financial freedom is not only the key to early retirement.  Having a handle on your finances will give you control of your life so you don’t have to stay at toxic jobs and can pursue your passions without fear.  Financial freedom also helps you prepare for the unexpected, by ensuring that you can deal with personal and family emergencies without jeopardizing your life and goals.  Aren’t you ready for peace of mind? Let’s get started!

# 1: Know Your Numbers 

Before getting started on all of your financial goals you need to understand your numbers.  Start with your income.  Your gross income is what you earn before taxes, benefits, and other payroll deductions.  What you actually take home is your net income. 

Calculate how much money you’re bringing in each month.  This should include your net income and any other side hustle income you may have.  If you’re a student, calculate how much money you’re getting from grants, scholarships, student loans, or part-time jobs.  For students who receive money on a semester basis, add all of your income and divide it by the number of months you need to make that money last.   

Once you know exactly what income you’re working with, it’s time to calculate your net worth.  Your net worth is a useful snapshot of your current financial position.  To calculate this number you need to add everything you own: cash, savings, the value of cars, houses, or other valuables that you have completely paid for.  Now subtract that number by anything you owe: credit card debt, student loans, car loans, mortgages, or any other debts.  For many of us with student loans, our net worth will be a negative number.  Do not get discouraged, having a negative net worth (or “being in the red”) is okay as long you have a plan in place to change this! 

By figuring out your net worth you are already ahead of many people.  Congrats! 

# 2: Create a Budget 

I know, I know–everyone hates budgets, because we see budgets as a restriction on our money.  However, budgets are how we understand our spending habits so we can change this to achieve our financial goals.  You can start off by looking through all of your expenses for the last few months to see your spending patterns.   

There is no right or wrong way to budget, you have to find a system that works for you.  Some of the most common budget methods include: 

1. Zero-Based budgeting where you assign every dollar you bring in each month to do a specific job: pay bills, grocery shopping, fun money, etc.  There are many digital applications such as EveryDollar that allow you to track your money using this method.   
2. The envelope method for when you need a more strict way to budget.  This method entails calculating how much money you want to spend on entertainment, groceries, gifts, ect. and placing cash in labeled envelopes.  This allows you to keep track of when you’ve run out of money for each of your spending categories. 
3. The 50-20-30 budget where you allocate 50% of your monthly budget towards essentials, 20% towards financial goals like savings or paying debt, and 30% towards things you want.  

It is okay to play around with different methods, a combination of methods, or create your own, until you find one that works for you. 

# 3: Build an Emergency Fund 

A good emergency fund will cover 3-6 months worth of expenses.  But you can work your way there.  A good goal to start with is saving your first $1,000.  You should keep your emergency fund money in a separate savings account so you are not tempted to use it on brunch or other entertainment that may seem like a true emergency.  Having an emergency fund will give you some peace of mind when the inevitable comes—and I promise you it will.  

An emergency fund will also prevent you from having to rely on high interest credit cards during emergencies which can derail your financial goals. 

# 4: Make a Plan to Pay off Debt 

Paying off debt is an important part of your financial journey and often the part that seems most daunting.  Whether you owe $1,000 or $500,000, come up with a plan and get started.  There are two common methods for tackling debt:

1. Snowball method where you make minimum payments on all your outstanding accounts, then pay any extra money towards paying down the smallest debt first and work your way up, regardless of the interest rate.  This is a great method if your debt interest rates are similar.  This method can also give you renewed motivation every time you pay off one of your debts.
2. Avalanche method where you make minimum payments on all your outstanding accounts, then paying any extra money toward the debt with the highest interest rate.  This is a good method when you have debts with different interest rates.  Tackling those accounts with high interest rates (such as credit cards) first can save you lots of money.

# 5: Invest    

Once you have a plan for your finances, create a brokerage account from trusted investment management companies such as Vanguard or Charles Schwab and start investing!  It really is as simple as creating a checking account.  Sounds too good to be true–stay tuned as we go over investing details and the investment bro-lingo. 

The key to financial freedom is getting started! Don’t get overwhelmed by the new terminology, we will be breaking this down step-by-step over the coming posts.  Follow us on social media and sign-up below–join us in changing the game. 

Congratulations! You’ve officially embarked on your financial freedom journey.