3 Essential Steps to Take Charge of Your Financial Life—Starting Today
One day, everything changed. I had a happy family life—until my husband left and I found myself alone, crying, and wondering how I would support my three kids. My head was spinning, my heart broken. After nearly two decades of marriage, I had to start over—and my first step was to regain a comprehensive understanding of my finances.
Despite having a successful financial career earlier in life, at the time of my divorce, I faced total confusion. I wasn’t sure if my name was on the house or our checking accounts. I didn’t know how our assets were invested. I was unsure of the specifics of our retirement plan. The demands of life, running a household, raising children, and the division of duties led to such blind spots.
This financial confusion happens to millions (even those in happy marriages). Life gets busy, and it’s easy to become disconnected from your finances, especially when much of the management seems to take place on autopilot. But to thrive in your next chapter and your overall life—whether you’re rebuilding after a devastating loss or simply want to feel more prepared for the unexpected—you must take care of your financial health.
By taking charge of your wealth now, you will help you make confident, informed decisions and turn your vision for the future into reality.
So, where do you start? With these three steps:
#1. Take Inventory
The first crucial step is to understand your resources. List everything you own and its current value. Remember: Not all possessions are monetary assets. Furniture and clothing, for example, don’t count. But personal assets, such as your home, car(s), art, jewelry, and financial assets, including cash, bank accounts, investments, retirement accounts, and interests in private businesses, do.
From there, identify everything you owe—every debt or obligation. Note the outstanding balance, interest rate, and repayment terms for each. This will help you develop a clear plan to manage or pay off your liabilities.
#2: Think “45-20-35”
While I’m not a fan of tracking every dollar (who keeps all those receipts?), creating a framework to be more intentional with your spending is wise. I suggest the 45-20-35 model:
- I allocate at least 20 percent of my take-home pay toward my future—it's non-negotiable.
- To do this, I limit my fixed overhead (housing, transportation, utilities, and non-medical insurance) to no more than 45 percent.
- Then allocating 35 percent to variable costs (food, entertainment, clothing, vacations) helps me control my expenses and meet my savings goals. It also prevents me from dipping into my savings or investments if my income fluctuates.
But remember: It is possible to save too much. Doing so could, for instance, cause reliance on credit cards to meet monthly needs. Given that the average card charges nearly 25 percent interest today, this will undermine any returns generated from your rigid savings plan.
#3: Put Your Money to Work, Wisely
As you develop the best approach to grow your wealth, consider these questions:
- Do you have an emergency fund covering at least six months of expenses?
- Do you have high-interest debt to pay off?
- Are your assets diversified and easily sold? In other words, is your money accessible, or is all your wealth tied up in your house, retirement accounts, or a business?
- Do you have enough assets to fund your desired retirement?
The fact is, not all assets are the same — they don’t grow the same, or even serve the same purpose. The equity in your home, for example, may be significant but is only accessible if you sell—something you may have no plans to do. Retirement accounts are vital but can be costly to access in the event of an emergency.
Similarly, not all credit should be treated equally. It comes down to interest rates and how you use borrowed money. For example, a mortgage under 5 percent can be strategic leverage, while a credit card with a 25 percent APR is costly and will erode your net worth if misused.
Know Your Power
Taking charge of your finances doesn’t happen overnight, but your commitment to do it can. With a few key steps and an unwavering belief that you can handle whatever life throws your way—the good, the bad and the ugly— you can position yourself to thrive in your next chapter.
Steph Wagner is a nationally recognized thought leader in women’s wealth and financial empowerment who serves as the National Director of Women & Wealth at Northern Trust. Learn more at stephlwagner.com—and order her new book—out today!—below.
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