Playbook Part 1 - Foundations

Following are some foundational steps you can take to prepare yourself for financial advancement. These assume that you’re currently getting by financially (able to make ends meet with a modest lifestyle). Some of the advice will be updated for when you’re earning substantially more than you’re spending. Even for high earners though, if you’re struggling to progress financially, reviewing these steps might help you see changes you need to make. These are only very high-level descriptions of each topic. If any of these seem to identify challenges for you, do yourself a favor and really investigate the topic further. Related resources are provided below.

In no particular order:

Track your finances. In order to take real control of your finances, you need a way to see clearly how things are going and how they’ve changed over time. This is where monthly tracking comes in. If you’re inclined, there are software options you can use to help with this task. Alternatively, a spreadsheet or even a notebook is totally fine. There are plenty of variations that you can investigate on how exactly to do the tracking, but the end result should be that for every month you have a clear and consistent record of how much money came in, how much got spent (broken into spending categories) and what the balance was on each of your accounts where you hold money and any debts where you owe money. This kind of perspective will be critical for making good financial decisions.

Here are some tips related to tracking your finances:

Don’t get too hung up on creating the very best way to track your money. Come up with a system that gives you the visibility you need but is simple enough that you’ll stick with it every month. There are lots of variations on how best to do the tracking. Find what's going to work best for you.
Take steps to simplify the tracking. For example, limit the number of ways you spend money, and be consistent. If you use credit cards, think about using each card for only one category of expenses (like ‘food’ or ‘discretionary’). That way you don’t need to go hunting through every bank account and credit card statement in order to group your spending into categories. Also, deposit cash into a bank account rather than spending it directly. That way you’ll capture the value of it in your account balance and you’ll have a record of how it gets spent.
Hold about 1 month’s worth of expenses in your checking account (or whatever account you use to pay bills). Keeping a balance in this account helps make sure you never are short on a payment, even if it comes due sooner or is for a larger amount than you expected.
Set as much as you can on automatic. Have your paycheck deposited directly. If you’re saving money, have that move automatically to wherever you’re keeping the savings. Set as many bills as you can to pay automatically. For regular bills that require a check for payments (such as rent, sometimes) look into setting up an automatic bill payment through your bank.
When you review your finances in order to do your monthly tracking, verify that everything happened as it should have. Do your income and all your bills look right? Did they all get paid on time? Are there any charges that seem to be errors? Etc.

Manage your spending. This should be pretty obvious, but for some people it can be challenging to achieve. If you're not already, aware, use your financial tracking to identify areas where you'd like to spend your money differently, or maybe save instead of spend it. If you're prone to over-spending or spending impulsively rather than deliberately, it's time to take control. At minimum, cut out spending on things that cost the most and that you care the least about. There are several tips and tools available to help you reduce your spending. Some, like automatically moving money into savings, help to limit your spending by taking the money out of your hands. These are a fine place to start, but in the long run it's useful to learn to be disciplined about your spending. Just because there's money in your account doesn't mean you need to spend it. Maybe consider putting yourself on a spending plan or a budget. There are many ideas on how to implement these, and they aren't always useful tools for everyone, but it's a good idea at least to look into. Let's be very careful too, not to imply that everyone has room to trim their spending down. Some people certainly do, but many people already live frugally and have much more to gain by focusing on increasing their income than on managing their spending.

Be smart about using credit and other forms of debt. There are 3 reasonably good reasons to borrow money: 1) To cover a legitimate emergency expense up front so that you can pay it off over time, 2) to invest in something that will increase your wealth or income (like job training) and 3) for convenience, only if you already have the money in your account to pay off the full amount borrowed. Where people get into trouble is when they borrow money, such as on credit cards, so they can have something they want now that they can’t actually afford yet. Make a rule for yourself to save in advance for things rather than borrow to buy them and pay it off later. That said, it is also a mistake to avoid ever borrowing money or even having a credit card. You’ll want to build your credit history in order to have a good credit score. Having no credit record gives you a low credit score and will make some things harder and / or more expensive in the future (such as getting a car loan or mortgage, and sometimes qualifying to rent a place to live). It’s worth understanding how to build up a good credit score. One simple step is to get a credit card, use it only for one kind of regular expense (like a utility bill or groceries) and then pay it off in full automatically every month (except, sometimes in cases of financial emergencies). If you already have a substantial amount of debt, there are nonprofit organizations that can help you manage it in smart ways, often for free.

Be prepared for unexpected expenses. The conventional guidance is to save at least 10% of everything you earn and keep 3 to 6 months worth of living expenses set aside for emergencies. That’s a good goal to work towards but it isn’t necessarily achievable until you’re earning substantially more than you need to live. If your earnings are closer to a break-even with your necessary living expenses, you don’t get a pass on being prepared for unexpected expenses, but we’ll change the goal to make it achievable. Work to set aside at least 1 month of living expenses in savings plus have another two months worth available to borrow, such as on a credit card. Then if you run into an unexpected expense, you can borrow to cover the immediate costs, and use the cash reserves to make payments against the borrowed money. That should go a long way toward ensuring you can meet the expense and have enough time to adjust your finances to cover the costs, pay off the debt and restore your emergency savings. Remember too that this savings and credit is just for the unexpected. If there’s some kind of foreseeable big expense you have coming up (a car repair you know you have to take care of, a deposit for a new apartment, etc.) it’s best to budget for those separately and not use your emergency funds to cover them. If you do need to use your emergency funds, you’ll want to budget to replenish them as quickly as you reasonably can.

Build your confidence in learning new things. In order to progress financially, you’re going to need to learn some new things. For example, you’ll likely need to learn new skills to start and / or develop in a new career. You might want to learn about buying a house, or investing for retirement, or any number of other financial decisions. If you tend to shy away from investigating, researching and sometimes calculating in order to thoroughly understand something new, take steps to build your confidence. For many people, poor experiences in school undermined their confidence in their ability to learn. Don’t believe for a second though that struggles in school are an indication of an inability to learn. You may need to investigate how you learn best in order to know how to set yourself up for success. You may also want to practice learning something new (something you’ll enjoy!) just to remind and convince yourself that you can. In any case, shying away from things that you don’t yet understand will severely limit you financially.

One useful way to practice learning new things is just to get curious and investigate (i.e. do some Google searches about) the best ways to do things that you’re already doing anyway. For example, next time you’re going to clean your house, try Googling “best way to clean a house” and see what you can learn. Maybe there are tips and tricks that’ll make it easier, or useful products you didn’t know existed. Maybe you’ll find you’re already doing it the best way you can. In any case, making a habit of investigating the best way to do something, or how something works, will be useful in several ways. It will train your brain not to accept the status quo and to go looking for new information and improvements. It’ll hone your skills in sorting useful information from junk. And there’s a good chance you’ll observe yourself getting more knowledgeable and more skilled in the things you do. This practice of seeking, evaluating and incorporating new information will serve you well as you tackle new financial topics over time.

Identify and develop your soft skills. Think of soft skills as all things you do that make you awesome to work with, but are not unique skills for the job you're doing. Are you responsible and trustworthy? Enthusiastic with a positive attitude? A great communicator? Self-motivated? A team player? A good problem solver? Many of soft skills have to do with how well you relate to and work with other people. You don’t need to be stellar at every single soft skill, but you do want to identify which ones come easily to you and which take a bit more effort. This will let you play to your strengths and at the same time make sure there are no huge gaps in your soft skills that are going to hold you back. An awareness of your soft skills can also help you find the kind of work that’s likely to be a good fit for you. While soft skills can seem like they’re a natural part of your personality, they can actually be learned and developed with practice. Begin with an awareness of your soft skills and then look for opportunities to develop and display them.

Surround yourself with people who can help you. When it comes to money topics, people sometimes feel like they’re on their own. To progress financially though, you will need the help of people around you. Help can come in many shapes and sizes. Some people make you feel good and will just pick you up when you need a boost. Some you trust to think through a big decision with you. Some know things you don’t and will help you understand. Some know people you don’t and will help get you connected. In terms of financial development, anyone who is further along than you are, and who seems supportive of your progress, has the potential to be helpful for you, even if you’re not sure how yet. Unfortunately, the opposite is also true. Some people’s influence on you will be mostly counterproductive. Maybe they’ll undermine your confidence, or outright discourage your progress. Maybe they’re competitive instead of supportive. Maybe they’ll just exhaust you. Take stock of the people around you and understand for yourself if they’re likely to help your progress or slow it down. Where you can, try to surround yourself and strengthen relationships with the people who are most likely to help and distance yourself from those who aren’t. Of course you probably don’t have perfect control over who you spend your time with. But even developing an awareness of who is likely to be a positive or negative influence will help you decide how much influence over you they get to have.

As you begin to identify who might be helpful for you, also practice asking for help. For many people this feels awkward at first, which is all the more reason to practice and develop the skill. If you’re asking someone who you know can help, it can be straightforward: “I’m curious about becoming a nurse, can you give me some advice on how to get started?” On the other hand, if you expect the person you’re talking to might be helpful, but you’re not quite sure how, it can be useful to just share what you’re working toward and let them volunteer if they can help: “I’m looking into nursing programs and trying to understand the differences between some options. I wish I knew someone in the field who could offer some advice…” At minimum, practice letting people know what you’re working towards. You never know when someone will have the opportunity and inclination to help.

Be discerning about any financial partnerships you make. There are plenty of circumstances where your finances can end up entwined with someone else's. Be deliberate and cautious about when this happens. If you sign a lease with a roommate, make sure they’re not going to leave you responsible for more than your share. If you start a serious, romantic relationship with someone make sure your financial goals and practices are compatible early on. If you loan someone money, make sure either they can pay you back or you can do without that money. Make sure someone else’s lack of responsibility or differing priorities can’t end up setting you back. This is not to say you should never create these kinds of partnerships. Done well, they can substantially help support your own financial goals. It is vital to be discerning though.

Playbook Part 1 - Foundations

Suggested Searches, Resources and Deeper Dives