Mastering Your Personal Finances

The last two lines of the famous poem Invictus by William Ernest Henley read: “I am the master of my fate / I am the captain of my soul.” It’s a fiery, empowering end to a powerful poem—a reminder that people can shape the course of their lives and its outcomes. Well, your financial life is no different. Instead of feeling like a ship pushed to and fro by uncontrollable forces, it’s important to remind yourself from time to time that you’re actually at the helm.

Mastering your personal finances is a continual learning process, not a one-time destination. Here are a few evergreen areas for focus as you move toward becoming the captain of your financial health and autonomy.

Taking Control of Your Budget
Even if you think you have a pretty solid mental grasp on your income and expenditures, part of mastering your personal finances involves sitting down and creating a budget. Track every penny you bring in and spend for a month. Nowadays, this process is simplified by the existence of dozens of budgeting apps to help you manage your money. Whether you choose to put pencil to paper or use an electronic template, this step is crucial so you can understand your habits.

Only by tracking your spending can you set goals. For example, you may notice you’ve been spending a large chunk of your disposable income on eating out at restaurants. Being cognizant of this tendency will help you decide: Is this a trend you want to continue, or would you be better off buying groceries and preparing more meals at home?

Saving for Retirement
In this economy, there’s really no such thing as saving “too much” for retirement. It’s easy to put this savings goal on the back-burner, as it often feels less urgent than other more immediate responsibilities. But the principle of compound interest makes it all the more important to start saving as much as possible as soon as possible. Since you get returns on your returns, retirement savings tend to snowball over time.

If you start saving $250 per month at age 25, you will have built up $878,570 by the standard retirement age of 65. This assumes an 8 percent annual return. If you start doing the same thing at age 35, you will only have accumulated $375,073. And if you wait until age 45, you’ll have $148,236 by age 65. This just goes to show that even a few years or a few extra dollars can add up over time.

Cutting Excess Expenditures
There are many areas in which most consumers can streamline their expenditures. For example, co-CEO of Freedom Debt Relief Andrew Housser points out that cutting back on monthly entertainment fees alone can save some people between hundreds and over $1,000 per year. How? Well, it’s all too easy to subscribe to a cable package, subscription streaming service or new entertainment app. But $10 per month here and there can really add up—especially if you become too busy to take full advantage of every subscription.

Once you’ve tracked your spending and created your budget, the next step is cutting excess and reallocating these expenditures to more long-term goals: saving, investing and paying off debts.

Growing an Emergency Fund
If you lose your job, you’ll likely depend on your emergency fund to tide you over until your income starts up again. If your car breaks down, you can dip into your emergency fund for repair money. The same applies for a medical emergency, or if your home requires urgent repairs. Over half of people (56 percent) in the U.S. lack a fund containing three months of unexpected expenses.

Mastering your personal finances requires a combination of awareness and calculated action.