When it comes to money and financial planning strategies, there’s varied advice out there. While some tips are helpful, others can leave you feeling overwhelmed or confused. So when deciding what you should do with your money, a fee-only financial advisor in the D.C. area can help you come up with specific rules that will help you manage your finances in the most effective way possible.
It pays to work with a CERTIFIED FINANCIAL PLANNER™ in the D.C. area who can help you set some basic rules to follow in order to develop financial discipline. This involves the financial skills of:
- Creating a budget
- Listing, prioritizing, and paying off debt
- Building an emergency fund
- Planning for the future with goals
- Saving and investing for retirement
- Staying flexible, aware, and patient
A financial advisor in Washington D.C. at Brown | Miller can help you become self-aware of your financial habits and tendencies in order to create healthy financial change for the better.
Rule #1: Start With a Budget
The first step to financial discipline is understanding where your money goes and where you want it to go. To start a budget, you’ll first need to figure out how much money you have coming in and out.
If you don’t already have a handle on these numbers, then it’s time to get serious about tracking them. The easiest way to do this is by using a spreadsheet to list all of the items you spend money on each month.
Once you’ve got your numbers down, it’s time to set some goals. You can think about what kind of lifestyle you want, and then determine how much money it will take to support that lifestyle. Once you know what your income needs are, then it’s time to start making cuts!
The best place to start is with any extraneous monthly costs—things like entertainment subscriptions or gym memberships that aren’t absolutely necessary for maintaining your current lifestyle. Once those are gone, look at other areas where cuts could help, like cell phone plans, electricity usage, eating out less, reducing insurance premiums, shopping with a list, paying off your debts, etc.
Rule #2: List Out All of Your Debt
The next rule to follow in order to become a more disciplined spender is to know exactly what you owe, and how much it’s costing you. Start by making a list of all of your debts. Include credit card debt, student loans, personal loans, car loans, and mortgages. Then add interest rates, minimum monthly payments, and total balances for each account.
Finally, add in the minimum monthly payment that goes towards these debts each month – this can be found on statements or by asking the lender directly. Once you have an accurate picture of where your money is going right now, and where it could be going if only there were no such thing as debt, you can start working toward building financial discipline through paying off each debt one at a time.
Rule #3: Put Away Money for an Emergency Fund
An emergency fund is a great way to establish financial discipline. It’s essential that you have at least three to six months worth of living expenses saved up in case something unexpected happens, like losing your job or having medical bills pile up unexpectedly. It could also come in handy if there’s some kind of natural disaster or economic downturn where people are laid off, furloughed, and have trouble paying their bills on time due to not having cash flow incoming from work.
It’s important to know that this safety net is not the same as saving for your dream vacation or saving up for your next big purchase.
Rule #4: Think About the Future
The next step in developing financial discipline is to think carefully about your options. This means taking the time to consider your choices and how they might fit with your goals, needs, priorities, and situation.
Some questions you may want to ask yourself include:
- What are my financial goals and needs?
- Do I want an extravagant lifestyle or will I be happy with a simple life?
- Do I want to save up for retirement so that I can live comfortably in my later years or do I already have enough set aside for this purpose?
- Am I saving up for something specific like my child’s college tuition or am I just trying to build up my savings account as a safety net for unexpected expenses like medical bills or car repairs?
- Am I looking toward building enough wealth to retire when I’d prefer?
- How far away are these financial goals from becoming reality?
- Is there anything else that would make achieving those goals harder?
Rule #5: Save for Retirement
When thinking about the future, retirement planning often comes into play. You should create a savings plan for retirement and discuss an investment strategy with a financial planner in D.C. Once you know what your expenses are, set aside some m
oney specifically for savings and make it part of your monthly budget (this might be the easiest way). If possible, try saving 10% of each paycheck—but even 5% will help build up that emergency fund!
You can do this by contributing to a 401k or IRA. The amount that you should save depends on your age, income, current savings, and debt. If you are younger than 40, you could contribute 10% of your income each year. For example: if your total income is $50,000 per year and you are 30, then it would be best for you to contribute $5,000 per year ($1,000/month).
If you are between 40–50, consider contributing at least 15% of your income each year (ideally 20%). If someone were 45 with an annual salary of $60,000 they would need to contribute approximately $9,000 per year ($1,500/month) into their 401k or IRA account.
Rule #6: Pay Yourself First
There is a simple rule of paying yourself first. What that means is that if you are going to be saving money, you need to pay yourself the first chunk of it before anything else. In other words, if your total take-home salary is $3,000 per month and your bills amount to $1,500 per month, then you need to set aside $500 as savings in order for yourself to have any money left over to pay off debt or invest later.
This does not mean that all of your income should go toward paying off debt or investing; rather, it means that for every dollar earned by working hard at work each day, some portion can be set aside through automatic withdrawals from checking accounts into savings accounts so that there will be enough cash available when taxes are due or when emergencies arise.
Rule #7: Set Goals
If you’re serious about achieving financial discipline, you must have goals in mind. Without setting goals you’ll likely wander around aimlessly trying to fix things that don’t matter or aren’t broken.
After deciding on your first goal, write it down and create a plan to achieve it. The plan should include time frames for reaching certain milestones along the way—and then set deadlines for those milestones.
It is easier to make a goal than it is to keep it, right? So don’t be afraid to ask for help; there are many people who want nothing more than to help others achieve their goals, like the financial planners in D.C. at Brown | Miller.
Remember that long-term goals make your investments purposeful. Our team of experienced professionals will align each investment with your risk tolerance and time horizon, increasing your chances of staying on track to reach your goals.
Younger generations have the tendency to put off savings because they might not fully comprehend the power of compounding or time in the market. Maintaining long-term goals can help you commit and stay invested, giving compounding interest time to work in your favor by growing wealth. The longer you invest, the more you can benefit.
Of course you will have opportunities to reinvest your profits to increase potential profit further, so stay flexible.
Is your financial discipline impacting your success?
Rule #8: Be Flexible, Be Aware and Be Patient
When it comes to your finances, there are no hard and fast rules. There are only guidelines that can change based on your situation, goals, and priorities. Your financial strategy should reflect what’s important to you: whether it’s saving up for a trip or buying a house; building an emergency fund or investing in stocks; getting out of debt or saving for retirement. Sometimes those goals can even change within the same year!
Self-discipline is essential to keep your finances in check so that you can plan for the future and avoid debt.
It is absolutely essential to develop self-discipline in order to achieve financial discipline. Self-discipline is the ability to control your own actions and make sure you follow through with your decisions. For example, if you decide that you want to pay off debt and save money for other things, then you will need the self-discipline to stick to this plan even when it’s difficult or boring.
Self-discipline is also important because it helps keep your finances under control so that you can plan for the future and avoid getting into debt like many people nowadays trying to navigate market volatility. With enough self-discipline, you can achieve financial stability!
The Takeaway
Financial discipline is the key to benefit from a stable and independent financial status. A person who is disciplined will always be able to manage their finances in such a way that they will not fall into debt or suffer from unexpected expenses. If you want to practice self-discipline, start with these small steps first and build on them as you gain experience.
A financial advisor in the D.C. area at Brown | Miller can serve as your financial guide, ally, and accountability partner.
Reach out for a phone call to get started today – you don’t have to strive for financial discipline and excellence alone. If you are seeking the finest in D.C. financial services, we look forward to hearing from you!
Disclaimer:
This article is intended for informational purposes only, and not to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs, and investment time horizon. This report is for general informational purposes only and is not intended to predict or guarantee the future performance of any individual security, market sector, or the markets generally.
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